Slowdown and remittance fears
Costa Rica’s economy is entering a clear slowdown phase, after two years of strong post-pandemic momentum. GDP growth decelerated to 3.9% y/y in Q1 2025, driven by a sharp weakening in the domestic (definitive) regime, which accounts for the bulk of national output. While free trade zone activity accelerated—likely due to front loaded exports ahead of U.S. tariff risks—internal demand softened notably. Private consumption growth fell to 2.7%; investment momentum slowed; and services exports—particularly tourism—stagnated amid currency appreciation, rising insecurity and weaker U.S. growth. On the fiscal front, sluggish revenue growth and rising current spending widened fiscal pressures, while the primary surplus narrowed further. Despite this, the government has sought a $1.5 billion IMF flexible credit line as a precaution, rather than due to any balance of payments distress. Inflation remains near zero, reinforcing market concerns about prolonged currency strength and weak domestic demand. Colón appreciation has raised alarms over competitiveness and capital flow volatility, with the Central Bank signaling rising risk of portfolio dollarization.
Guatemala’s macroeconomic performance remained resilient in early 2025, with GDP growth holding near 4%, remittance inflows hitting record highs (at $22.6 billion), and exports rebounding—particularly driven by high global coffee prices. The external position has strengthened, with international reserves up 22.7% y/y. However, growing risks tied to U.S. trade policy—including newly proposed tariffs and a U.S.-Republican-backed 5% tax on remittances—pose emerging threats. Given that over 90% of Guatemala’s remittances originate from the United States, and represent nearly 20% of GDP, any disruption could severely weaken domestic demand, elevate poverty and slow growth. On the fiscal front, the deficit has widened to 3.1% of GDP, due to increased social and infrastructure spending, though debt levels remain low, and manageable.
El Salvador’s macroeconomic outlook remains relatively stable—thanks to strong remittance flows and low inflation—but deeper structural risks are re-emerging. Most notably, recent Bitcoin-related actions by the Nayib Bukele administration appear to contradict key IMF conditions tied to a $1.4 billion credit facility, including a March 2025 ban on further crypto purchases with public funds. This raises serious doubts about the government’s commitment to fiscal discipline and transparency. Meanwhile, the fiscal deficit remains elevated at $1.2 billion, with spending growth outpacing revenue gains, and public support for the administration is eroding amid controversial policy choices, such as the reintroduction of metallic mining.
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