Guatemala: Robust growth to gradually fade

CENTRAL AMERICA - Report 31 Mar 2022 by Fernando Naranjo and Felix Delgado

For second year in a row, Guatemala´s performance has been better than that of its regional partners. The economy showed strong growth, good external accounts, a notable improvement in the fiscal area and stable macro prices. Room for a second rebound will fade in 2022 and disappear in 2023. Guatemala´s economy will be less dynamic in the next 24 months. Despite the robust momentum, authorities will face several challenges.

The first is to avert political fragmentation to avoid deterioration in governability; the second to advance in vaccination process against COVID-19, and the third improving the political relationship with the U.S government. We estimate real GDP expansion for 2022 of 4.1% y/y, close to the potential rate, followed by a smaller increase, of 3.6%, in 2023. Growth will be mainly explained by a strong internal demand based on private consumption expenditures. External accounts will remain in positive territory, and the surplus in the current account will shrink slightly. On the fiscal side, we expect a slight deterioration in the financial deficit during 2022.

Costa Rica´s presidential election runoff will be held on April 3rd, and according to the latest polls the election will be tight. The campaign during this second round has been gravitating toward two divergent positions: governance experience, or a complete change of Costa Rica´s democracy. March was a month of good macroeconomic news. The IMF technical staff completed its review of the Costa Rican economy and reached an agreement with government officials. The IMF board of directors approved the review, and extended the EFF. This led two credit agencies to improve Costa Rica’s outlook, from negative to stable. This is a positive element, which will improve the country´s access to external financing in better conditions.

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