Slower, but no reason to panic
Costa Rican economic performance is showing warning signs that point toward reduced momentum, suggesting a slower year in 2027, although crisis is not on the horizon. A weak labor market has seen a decline in participation since January 2025, meaning reduced capacity to create jobs, and a threatened negative effect on domestic consumption. This trend coincides with the slowdown in free trade zone activity—Costa Rica’s primary growth engine. Annual economic growth could fall to below 3% in 2026, from 4.6% in 2025. The slowdown is pressuring fiscal revenues, as is the significant currency appreciation, reducing the VAT tax base on imports. The government presented several tax reform bills to Congress, among them a proposal to tax capital passive rents that seems to have larger collection possibilities. Neither estimates of potential collection nor the political feasibility of this maneuver are known. Headline inflation continued at close to zero to September, although the Central Bank board opted to keep the monetary policy rate unchanged, in a divided decision that also went against the technical recommendation.
El Salvador`s political situation remains stable, with domestic support for President Nayib Bukele still high, although with the intensity differing among surveys. The EFF agreement with IMF took effect after the IMF Executive Board on October 1 approved the combined second and third reviews, allowing for immediate disbursement of around $138 million. The Fund sees strong economic performance, supported by increased security, rising investor confidence and efforts to reduce macroeconomic imbalances. It considers that fiscal consolidation has advanced, banking reserve buffers have strengthened, and required reforms related to bitcoin strategy are ongoing. While targets on bitcoin accumulation by the government were not met, a waiver was granted subject to renewed commitments. Despite the delays in pension and civil service reforms, the IMF considers they will help the fiscal consolidation goals. The Executive Board decision is key to supporting international confidence during the economic adjustment process.
Guatemala’s economy remained resilient late in 2026, with economic activity growth averaging 4.3% through August, and GDP expanding 4.4% in H1. Household consumption, supported by remittances, and strong capital formation were the principal drivers. But the outlook for 2027 is becoming less favorable. A powerful El Niño has reduced agricultural yields, increased production costs and pushed inflation from 3.3% to 4.7% in September. If severe conditions persist through April 2027, food prices and employment could face further pressure, because agriculture supports roughly one-third of jobs. Business confidence also weakened, particularly over investment and in the outlook for near-term economic improvement. Public finances nevertheless remain stable: revenue growth exceeded expenditure growth; the fiscal deficit remained near 2.9% of GDP; and public debt remained below 30% of GDP. Access to Development Bank of Latin America and the Caribbean (CAF) financing is providing another source of support. Externally, exports rose 5.7%, but imports increased 10.1%, due to costly petroleum purchases. Remittance growth slowed sharply to 7.8%, reflecting comparison effects, immigration concerns, higher U.S. living costs and tighter financial conditions. Nonetheless, the currency remained stable, while international reserves of $33 billion provided a substantial buffer. Overall, Guatemala faces a mild slowdown rather than a crisis, supported by domestic demand, fiscal stability and reserves.
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