Good spots and prospects
El Salvador grew faster than expected in 2023 and, under optimistic and somewhat daring assumptions about economic policy decision-making this year, it could maintain those positive economic results during the outlook period. During this second administration of President Nayib Bukele, we expect less confrontational external relations with advanced economies, especially with the United States, by far the country’s main trade and financial partner. The probability of a fiscal adjustment program supported by the IMF has increased. Recent measures to attract FDI are expected to be successful, leading to a boost in confidence, an out-of-trend inflow of foreign funds and real economic growth lower than in 2023 but within the boundaries of 3% y/y, instead of the previous long-run performance of around 2%-2.5% y/y.
Costa Rica has now accumulated 10 months of negative variation in its consumer price index. At first sight it’s tempting to theoretically conclude that decreasing prices are good for the economy, because they improve families’ purchasing power. Nevertheless, persistent negative inflation could also have negative consequences. We believe that the negative price trend has been pushed by the persistent appreciation of the colon, driven by inadequate fiscal and monetary policy decisions: excessive external financing of the fiscal gap, and a high monetary policy rate, leading to an inappropriately restrictive stance of that policy. Risks of persistence of deflation and harming economic activity due to a loss of competitiveness are principal public policy challenges.
Guatemala´s president, Bernardo Arevalo, completed his first 100 days in office on April 22nd. High expectations persist, despite the president making no major changes in this short period. During the first three months of 2024, confidence in economic activity experienced a major recovery. Guatemala also received good news about its credit rating. Standard and Poor´s upgraded the country´s outlook from stable to positive, highlighting the historic responsible fiscal and monetary policies. S&P also highlighted that a possible upgrade to BB might be on the way, in the next six to 12 months, if public policies remain prudent. Arevalo does not have an easy road ahead. He has to live with Consuelo Porras, a questioned and U.S.-sanctioned Attorney General who managed the crusade against him during the presidential transition process. May will be a very important month. The Guatemalan Congress will elect nearly 200 magistrates for the main national courts, including the Supreme Court.
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