Surprisingly resilient
El Salvador’s 2025 economic performance was better than expected, given global economic and geopolitical turbulence. The growth engines were both private and public investment, reflected in the extraordinary construction boom, and in foreign remittances that soared by almost 18% y/y. We also expect turmoil in 2026 and 2027. Forecasting economic growth and other macroeconomic indicators amid great uncertainty and volatility requires bold assumptions. The main one for the 2026-2027 outlook period refers to the probable size of the current external shock due to the Iran war. We use IMF assumptions from the April WEO, as usual, although toward the end of April they look optimistic, biasing risks downward. We expect growth to moderate to 2.9% y/y in 2026, and then to rise to 3.3% in 2027, mostly affected by the oil shock of the Middle East, and by the probable strong impact from ENSO climatic shock. Both the current account deficit and headline inflation will increase accordingly. Despite uncertainty over the future of the Iran war, we don’t perceive a crisis scenario yet. We assume that weak relations with the IMF and lack of compliance with the EFF agreement will be worked out in coming weeks.
Costa Rica’s economy continues to perform well, due primarily to Free Trade Zone dynamism, driven by the medical devices sector. An unsurprising deceleration is enroute after the 2025 export boost anticipating the erratic tariffs’ decisions in the United States. The definitive regime activity and exports remain stagnant at low growth rates of around 3% y/y, affected by the highly restrictive monetary policy, with little signs of reversal in the short term. The IMF mission visit in early March perceived the negative effects of the current monetary policy stance and suggested advancing toward further monetary easing. The influx of FX into this narrow market, facing weak demand due to the monetary restriction, has continued appreciating the local currency. The mix of this nice short-term picture with high risk for the real economy in the future could look good for coping with the ongoing external shocks in terms of price stability, but could be disastrous for many economic activities not associated with the FTZ. The risk of severe climatic conditions from ENSO in H2 and in 2027 will only aggravate these prospects.
Guatemala is experiencing a period of institutional adjustment in tandem with stable economic performance, although inflation risks are building. Attorney General Consuelo Porras, sanctioned by the United States and the European Union, failed to advance in her bid for a third term, consistent with President Bernardo Arévalo’s opposition. The government also announced the construction of a new maximum-security prison aimed at addressing structural weaknesses in the penitentiary system, including overcrowding and corruption, and recent security incidents. The initiative reflects a regional trend toward stricter security frameworks, while authorities have emphasized adherence to due process. Economic conditions remain broadly stable. Activity continues to expand at a pace similar to that of 2025, supported by record-level export growth and remittance inflows, the latter accounting for a significant share of GDP.
Now read on...
Register to sample a report