Adjusting to challenges
Guatemala experienced relative macroeconomic stability in H1 2025, despite rising global uncertainty from new U.S. tariffs, migration policy shifts and geopolitical risks. President Bernardo Arévalo has sought to strengthen institutional legitimacy and to advance an ambitious reform agenda focused on anti-corruption, infrastructure and social development. Economic growth averaged 3.8% in H1, above the 2024 pace, supported by retail activity, stronger exports and remittances. Remittance inflows surged to a record $24 billion (20% of GDP) by July, echoing patterns observed during U.S. President Donald Trump’s previous term. Public finances reflected rising social spending: revenues grew 7.2% y/y, but expenditures expanded 16%, widening the fiscal deficit. Nevertheless, debt remains low, at 27.3% of GDP. Inflation fell sharply to 1.2% in July, its lowest growth rate since 2020, largely due to lower oil prices. Growth is projected at 3.5% in 2025 and 3.4% in 2026, led by consumption, remittances and public investment. Risks include weaker U.S. growth, protectionist policies and global geopolitical tensions, all of which could weigh on exports, remittances and business confidence.
Costa Rica’s economic development model followed since the mid-1980s, based on economic openness and the promotion of export efforts, is at a crossroads. Founded on post-WWII global arrangements aimed at reducing barriers to international trade, it now faces a radical change, in the face of current U.S. trade policy. Costa Rica will have to rethink and reconsider its long-term development strategy, until now closely tied to a traditional trading and financial partner that has changed its rules of the game. Yet the Central Bank revised its 2025 growth projections upward even further, to 3.8% y/y, increasing the distance from our own much more modest 3.1% forecast. With the definitive regime decelerated and dark clouds on the horizon for the FTZ, we can’t share the Bank’s optimism. Furthermore, we believe that the persistence of restrictive monetary policy would be harmful for growth.
In El Salvador, Congress on August 1st approved a set of constitutional reforms to institute the continuous and unlimited reelection of presidents. The new law also extends a presidential term to six years, from the current five, while the second-round mechanism was eliminated. Moreover, the current second term for President Nayib Bukele was shortened from June 2029 to June 2027, in order to unify presidential, congressional and mayoral elections. Moving up the next presidential election to 2027 from 2029; resuming government debt payments to private pension funds; and terminating the agreement with the IMF -- both of these latter moves planned for 2027 -- risks fomenting distrust among foreign investors, at a time when El Salvador will likely need them. Short-term economic activity indicators are showing a still-weak recovery, supported by a foreign remittance boom and a likely temporary improvement in merchandise exports.
Now read on...
Register to sample a report