Even if war ends soon, expect future negative economic impacts
Higher inflation and lower economic growth globally are the foreseeable international trends for this year, as a sequel to the Iran war. Those outlooks will hardly change before 2027, whether or not the Middle East conflict ends soon, because the direct and secondary effects on oil and other commodity prices have already occurred. Moreover, global uncertainty prevailing since Q2 2025 won’t disappear, as it is derived from profound changes in the global political and economic order.
In Costa Rica, economic activity is decelerating, as had been expected even before the current external shock, and the disinflationary tendency could revert to positive, although low, headline inflation by yearend. The June 1 IMF report on Article IV consultation shed light on perspectives and policy reforms necessary to tackle growing problems that could alter long-term sustainability of current achievements in economic growth and stability. These include a new fiscal reform in the face of weak revenues; measures to reverse the serious expected imbalances in the social security institution; and the risk of deflationary dynamics becoming permanent, calling for easing monetary policy.
El Salvador is enjoying a satisfactory pace of economic activity, although headline inflation has started to mirror the expected consequences of the current external shock. The still-very high internal support President Nayib Bukele’s government continues to enjoy is helping to build robust economic expectations. The boom of private investment in construction that led to satisfactory real GDP growth in 2025 is a result of that favorable business climate. It continues driving economic activity, but now along with other sectors, meaning that growth in 2026 could overperform our forecast. That will depend upon how large both the slowdown in foreign remittances and the trade deficit increase turns out to be. Fiscal results improved substantially in April, thanks to higher revenues and lower expenditures, which is positive for putting the EFF agreement with the IMF on track.
Guatemala’s economic outlook remains broadly favorable, but downside risks have risen, due to external trade uncertainty and emerging climate conditions. On the external front, the U.S. investigation into forced labor practices could result in an additional 10% tariff on Guatemalan exports, particularly affecting sectors such as textiles, manufacturing and agriculture. While exports to the United States account for over 30% of total shipments, the overall macroeconomic impact is expected to be moderate, as domestic consumption—equivalent to roughly 90% of GDP, and supported by strong remittance inflows—remains the economy’s main growth driver. The strengthening of El Niño also represents a growing domestic risk. Agriculture accounts for around 10% of GDP, and employs nearly one third of the labor force, making Guatemala highly vulnerable to drought, lower crop yields and higher food prices. Although growth remains solid and inflation is within the Central Bank’s target range, the combination of trade and climate-related risks has shifted the balance of risks to the downside.
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