Hopes deferred
El Salvador’s short-term economic outlook looks less hopeful we projected in our April 2024 report, after analyzing H1 trends. Deviation from key assumptions we made in the April forecasting exercise has turned perspectives less favorable. The eventual better performance that we expected either could be delayed for 2025-2026 or may be aborted entirely. The results will depend upon implementation of key public policies for overcoming the bottlenecks that should be addressed, as well as the intensity and opportunity of those policies to increase competitiveness and stimulate investment. Except for the outstanding advance of tourism inflows, influenced by the increase of public security after the frontal attack on crime and violence, other measures to attract capital and brains as well as FDI are not delivering signs of success yet. Moreover, the traditional drivers of growth in this dollarized economy from exports and foreign remittances have decelerated. Therefore, we have lowered our initial growth forecast for 2024, to 2.6% y/y, while keeping our previous estimate of 2.9% for 2025, which would be pending an eventual rebound if government measures to stimulate the economy succeed. Most other indicators would continue as in 2023, except for public finances, where the deficit reduction in 2022 continued in 2023, only when pension expenditures are not computed. Otherwise, deterioration of fiscal balances is worrisome.
In Costa Rica, September brought both encouraging and concerning news for the economic landscape. On the positive side, the Banco Central de Costa Rica (BCCR) shifted its monetary policy to promote growth by reducing the monetary policy rate, signaling a move away from restrictive measures aimed at controlling inflation and stabilizing the currency. This adjustment, along with an upgrade in Costa Rica’s credit rating by Moody’s, suggests favorable conditions for investment, reduced borrowing costs, and potential economic recovery. However, rising crime rates and Costa Rica's growing role in the global cocaine trade present significant risks, particularly for tourism and foreign investment, which could undermine long-term growth prospects.
Guatemala stands at a critical moment. During the last week of September, a committee of academics, judges and lawyers submitted to Congress a list of candidates who would appoint 13 Supreme Court magistrates and 300 appeal court judges, all of whom must be elected before October 13th. Corruption has plagued the judicial system for years, with political elites manipulating appointments to protect their interests. As President Bernardo Arevalo pushes for reforms, including the removal of Attorney General Consuelo Porras, the outcome of these appointments will either pave the way for change, or will perpetuate the status quo. Meanwhile, Guatemala’s economy shows moderate growth, sustained by remittances, despite a slowdown in exports and declining dynamism in domestic production. We don´t see major deviations from our recent forecast.
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