Guatemala: No Surprises, But Rising Worry
The outlook for the Guatemalan economy has not changed significantly since March, when we discussed our 2017-2018 outlook. Growth continues to be moderate; support for the current account remains positive, basically due to a rise in private remittances; the fiscal situation remains under control; and monetary aggregates reflect the lack of dynamism of the economy. But two things have changed. First, 2017 inflation is expected to surpass the upper limit of the target range; second, we expect the currency to appreciate.
Yet President Jimmy Morales has lost support, as reflected in the Bank of Guatemala’s July’s private sector expectations survey. Recent developments will make things worse: the CICIG, the UN anti-corruption office instrumental in ousting ex-president Otto Perez, and Guatemala’s general attorney, reported on their investigation of political parties’ financial deals during the presidential campaign. The investigation led to a formal petition to begin removing Morales´ immunity from prosecution. Two days after the petition, Morales decided to expel CICIG commissioner Dr. Iván Velázquez from the country. A new wave of public protests is expected, which are likely to further deteriorate the investment climate.
Costa Rica’s Central Bank revised its macroeconomic program for 2017-2018, with some relevant highlights for 2017: The Bank now shares our view of economic slowdown, but continues to be more optimistic about capital inflows, and recognizes a substantial loss of international reserves, excluding $1 billion in eventual financing from the Latin American Reserves Fund. The Bank foresees a return to normality in 2018, which we don’t share. As we reported last month, several elements are likely to lead to more economic challenges and setbacks next year.
In El Salvador, we’ve been warning about the risk of severe cash restrictions in governmental finances since June 2016. Lack of political decision making has caused these effects to snowball, aggravated by the government’s poor communication management, which led to severe downgrades by the rating agencies. S&P and Fitch reaffirmed their low grades, as political polarization has prevented deals to solve fiscal problems. Economic indicators show a panorama similar to the one we outlined in July: volatility in economic activity, low inflation, a moderate rise in trade, fast growth of foreign remittances and a rising fiscal deficit.
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