High hopes and mixed signals
Costa Rica’s political conditions have stayed the same for the past two years, with strained relationships between President Rodrigo Chaves and members of the congressional opposition now adding to Chaves’ renewed criticism of the Comptroller General. Recall that during these past two years the president has reproached both the Constitutional Court and the Supreme Electoral Court, contrary to the traditional respect between powers as the norm for many years. The more recent element is the bill presented to Congress calling for a referendum aimed at direct people’s legislation that would undermine powers of the Comptroller General, despite existing jurisprudence from the Constitutional Court about the unconstitutionality of those kind of reforms through general laws. Economic evolution shows mixed signals, with good news about the tourism sector and access to external financing, coupled with economic deceleration and worsening public finances. Inflation remains negative, while the Central Bank has stopped reducing the monetary policy rate.
El Salvador in June 2024 began a new five-year period under the presidency of Nayib Bukele, who was reelected to the post in February. In Bukele’s inaugural speech, we found particularly enlightening his emphasis on addressing economic problems during his second term, once crime and violence would be brought under control. Although no details have been advanced, we assume that a main set of measures would relate to ordering the unsustainable fiscal finances. Economic activity decelerated towards the end of Q1 2024, mainly due to the fall of merchandise exports and deceleration of foreign remittances, both tending to reduce domestic liquidity. Exports of services, comprising mainly tourism, look as though they’ll continue expanding. We expect to confirm those statements when this year’s national accounts data will be released. Inflation is down to 1% to 1.5% y/y. Fiscal conditions tend to worsen due to lower dynamism of tax collection, combined with higher expenditure.
Guatemala is the largest country in Central America, in terms of both GDP and population. For a long time, it was one of the most stable economies in Latin America. However, FDI remained low compared to other countries in the region. Guatemala has a good chance of increasing FDI, especially given the close relationship that the current administration maintains with the United States and the European Union. In recent weeks, several important announcements were made. First, Walmart announced an investment of $700 million over the next five years. On June 18th, President Bernardo Arévalo declared the desire to use the figure of PPP to modernize the Aurora International Airport. Guatemala´s economy presented few changes since our last report. Economic activity kept growing in line with our forecast (3.5%). In the first weeks of June, the Vice Minister of Finance announced that Guatemala had held meetings with Moody´s. Guatemala holds a non-investment grade of Ba1 from Moody´s, the last level before the investment grade Baa3. If the country achieves this objective, it’s possible that other credit rating agencies will follow.
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