GUATEMALA: Stability, but with structural problems
The 2018-2019 economic outlook for Guatemala shows both stability and structural problems. The country will continue to grow at a moderate rate, of 2.9%-3.5%. But that’s insufficient to pull the population out of poverty. Inflation will stay within the Central Bank’s 3%-5% target range, and the currency will remain relatively stable. Economic policy will continue to be orthodox, with fiscal deficits at less than 2% of nominal GDP, and monetary expansion in line with expected nominal GDP growth. The current account, as it has for the past two years, will keep turning in moderately positive numbers, as the flow of family remittances keeps increasing by 7% per year on average.
This characterization, of moderate growth with stability, is a continuation of the Guatemalan economy’s recent behavior. Macroeconomic balances have generally been managed carefully, via conservative fiscal and moderate monetary policy. This is reflected in a low public sector debt to GDP ratio (of around 24%) and rising reserves, of $11.8 billion as of December 31st, 2017. But they also reflect relatively low social investment, which affects the quality of human resources, and limits growth.
El Salvador’s ruling FMLN lost support in the March 4th legislative and municipal elections. That wasn’t surprising; we’ve been forecasting this for some time. As expected, support didn’t shift from one extreme to the other, with FMLN losing eight seats, and ARENA gaining just two. But the general outcome showed that most voters think the country is going in the wrong direction. The results mean the FMLN can no longer block qualified majority votes in Congress, while the opposition as a bloc will have both a simple and qualified majority. The implications aren’t clear: while Fitch Ratings expects an end of the political gridlock on fiscal matters, and an improved climate for economic policy decisionmaking, we are less optimistic. The government could reject tax hikes and spending cuts, in fear of losing more support in the runup to the 2019 presidential elections.
Costa Ricans will vote on April 1st in a second-round contest to elect the next president, choosing between the two leading candidates in the February 4th first round: Carlos Alvarado, of the ruling center-left Citizens Action Party (PAC), and Fabricio Alvarado, of the National Restoration Party (PRN). Fabricio Alvarado, a recent member of Congress, was the top first-found vote-getter. He has continued to lead most polls, by eight to 14 points. But analysts haven’t yet called the election, since Costa Ricans have recently shown a penchant for shifting among political parties. As one political analyst quipped: “The only sure thing is that Alvarado will be the next president.”
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