Low growth, remittance surges and a presidential election mystery
El Salvador suffers from chronically low economic growth, and our April 2025 projections seemed to confirm this weak performance. Recent history, from June 2019 to date, when President Nayib Bukele defeated a paralyzing bipartisanship, has showed no improvement in growth. Restoration of public security demanded government efforts during Bukele’s first administration, and was a necessary but insufficient condition to counteract the negative effects of an unsustainable fiscal situation, and other structural problems that have hindered investment. Moreover, the ongoing fiscal adjustment programs will be contractionary in the short term. Current political news, about reelection and the changed term of the current administration, doesn’t help, because they suggest moves towards more authoritarianism, which investors find unwelcome. Economic growth will have a transitory impulse this year, due to a rise in trade and foreign remittances as a first reaction against U.S. trade and migration policies that have been highly uncertain for most of the year. The fiscal adjustment planned in the conditionality of the EFF agreement with the IMF is expected to be fulfilled, counteracting part of the transitory boom. We don’t yet have enough evidence to forecast significant changes in our outlook for 2026, which was included in our April 2025 report.
Guatemala’s economy is riding a remittance surge, with inflows hitting $2.4 billion in August 2025 (equal to close to two months of exports) and lifting international reserves to a record $30 billion, accounting for 25% of GDP. While this surge supports growth and helps keep inflation low, it creates persistent FX appreciation pressures, and has forced the Central Bank into $4 billion of interventions ytd. The boom is fragile, largely driven by U.S. migration uncertainty, raising medium-term risks to competitiveness, fiscal revenues and domestic demand sustainability.
Costa Rica heads into the February 2026 general elections with polls showing no clear frontrunner, and over 70% of voters still undecided, pointing to another runoff and a likely fragmented Congress. President Rodrigo Chaves maintains a close to 50% approval rating, but his chosen successor Laura Fernández is polling at just 12%, underscoring the volatility and uncertainty of the race. Insecurity and crime dominate voter concerns, while the economy shows slowing domestic growth in (2%), job losses (-102,000), and persistent negative inflation, prompting a recent quarter-point monetary policy rate cut to 3.5%. Political unpredictability and economic headwinds raise the risk profile heading into 2026.
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