GUATEMALA: Moderate Growth and Stability Expected
Guatemala experienced a year of adjustment in 2016, after the political turmoil of 2015. The new administration spent its first months negotiating a learning curve, given President Jimmy Morales’ lack of political experience. It was also a year of adjustment to a new political balance in Congress, in which the president lacked a majority, hampering his administration’s ability to move fast on relevant issues. After the euphoria of the presidential honeymoon waned, private sector confidence declined – and that hit investment.
We expect another period of moderate growth and stability in 2017-2018. After growing 3.1% in 2016, the economy is headed for 3.3%-3.5% growth, both this year and next. Inflation, which closed at 4.2% in 2016, should remain within the Central Bank’s target range (of 3% to 5%), as the short-term fiscal and monetary policies maintain their orthodox position. The exchange rate, under appreciation pressure in recent months, will remain relatively stable. The current account, which closed 2016 in surplus, will be basically flat in 2017, before shifting into deficit in 2018, as international oil prices rises erase the terms of trade improvement of the past 18 months.
In El Salvador, there were few changes in the main short-term macroeconomic indicators in January and February. The monthly index of economic activity has remained fairly stable, rising 2.4% y/y during H2 2016, with signs of downtrend. Inflation turned positive again, after a 0.3% increase of the CPI in February, delivering a 0.3% y/y rise and a 1% upsurge since December 2016. Deposit interest rates continue to be very stable, at around 5%.
Public finances have evolved according to financing availability. Revenues increased steadily in annual terms, at 5.5% in 12-month accumulated terms, and 6.5% since May 2016, then rising 5.6% in January. Conversely, 12-month expenditures showed negative annual rates May through November 2016, with a 3.8% upsurge in December, and 3.1% in January. The decrease of the 12-month deficit, from monthly averages of more than $350 million in 2014 and 2015, to just $34 million in November 2016, was due only to a change in financing restrictions.
In Costa Rica, campaigning for the February 4th, 2018 presidential elections will start on April 2nd, with the primary of the main opposition party, National Liberation Party (PLN). The two main contenders are former president José María Figueres, and current president of Congress Antonio Alvarez Desanti. Both men have degrees from Harvard University. In the official Citizens Action Party (PAC), two former ministers of the current administration, Welmer Ramos (Economy), and Carlos Alvarado (Labor), will seek the their party´s nomination, in the July 9th primary. The other major opposition party, the Social Christian PUSC, will choose between former presidential candidate Rodolfo Piza, and 2015-2016 president of Congress Rafael Ortiz. According to the polls, the PLN is Costa Rica’s largest political party, supported by nearly 25% of the population. But almost 50% of the electorate supports no party at all.
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