Volatile times bringing surprising favor to the region
Costa Rica dealt with an array of factors that slowed economic activity in 2024. However, real GDP growth outperformed our forecast, although growth was lower than in 2023. Domestic and external exogenous elements influenced the economic deceleration, such as a restrictive monetary policy stance beyond what was necessary to comply with the Central Bank’s inflation target, leading to continued currency appreciation; plus global growth slowdown. Prospects for this short-term outlook in 2025-2026 imply a slight moderation of economic growth and quite stable public finance results, driven by the compliance with the fiscal rule. Free trade zones are likely to remain the most dynamic sector, helping to maintain a low current account deficit, and the return to normal monetary and financial conditions. The exercise is based on bold assumptions amid a very uncertain international scenario, with high risks of major changes in the global economic and political order. Too, 2025 is a pre-electoral year, with political crossroads that could alter the Costa Rican social contract more significantly than in the last 80 years.
El Salvador seems to have emerged well from preliminary scrutiny over the risk of very negative consequences over the U.S.’s announced measures on tariffs and immigrants. The February 3rd meeting between President Nayib Bukele and U.S. Secretary of State Marco Rubio was reportedly cordial, with Bukele open to receiving undocumented migrants from the United States. The Salvadoran government advanced the required measures to obtain the final approval of its IMF agreement by the Executive Board, starting with reform of the bitcoin law to eliminate the risks on government finances as perceived by the IMF. Bukele’s orientation since last year now looks well-aligned with U.S. interests, an issue that raised doubts at the beginning of his first administration. Economic indicators show few advances with respect to our analysis in recent reports: economic activity continues decelerating; merchandise export performance was weak; foreign remittances slowed; public debt reached very high levels; and tourism maintained its robust momentum of the past two years.
Guatemala has strengthened its political and economic ties with the United States under President Bernardo Arévalo, marked by increased cooperation on migration and security, including Guatemala’s willingness to accept more migrants deported from the United States. Economic growth remained stable at 3.7% in 2024, driven by strong domestic demand, remittances and investor confidence, with inflation at a low 2.2%. But external risks persist, particularly over U.S. inflation and immigration policies, which could impact remittances and currency stability. Too, uncertainty around Nicaragua’s potential expulsion from CAFTA-DR raises regional trade concerns. While the outlook for Guatemala remains positive, investors should monitor these external factors closely.
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