Bracing for impact
Costa Rica’s economic activity continues along the path set in our short-term economic outlook (see our report of April 2025), although deceleration now looks more pronounced. To face the effects of the current international turmoil charged with lots of uncertainty, we expect the government to maintain a prudent expenditure policy, and that the Central Bank will probably continue its extremely conservative stance. Political and social developments have continued to deteriorate in the last year of President Rodrigo Chaves’ administration, with growing polarization in a country unfamiliar with authoritarian styles of government. This situation is similar to situations observed in several other countries for some years now.
In El Salvador, economic activity has decelerated persistently since Q1 2024, as we have outlined in past reports, leaving the country in poor shape to face growing political and economic international turmoil. Signals of an upturn have been observed in some short-term indicators, such as merchandise exports and foreign remittances. But we do not discard the possibility that these could be mere anticipatory steps to the risks of increasing tariffs, and massive deportation of migrants, both from the United States. In our May report, we described the declining popular support for President Nayib Bukele, still amid questioning about the strategy used to reduce crime and violence to current levels, one factor that has bolstered the president's popularity. Fiscal conditions don’t look good in our view, but the IMF staff mission considers El Salvador advancing well within the EFF agreement, enough so as to recommend that the IMF executive board approve the first revision of the program.
Guatemala’s economy continues to be stable in 2025. Remittances reached a yearly record of $22.9 billion, and the Monthly Index of Economic Activity grew 3.8% y/y through April. But rising uncertainty caused by new U.S. immigration policies, global trade changes and regional spillovers is leading households and businesses to adopt a more cautious stance. Despite strong remittance inflows, consumption has weakened, with 64% of households reporting increased savings. Business confidence has also declined, and although inflation remains low at 1.7%, risks tied to rising oil prices and global supply shocks could reverse this trend. Fiscal performance is broadly aligned with projections, with revenues rising steadily, and expenditure expanding more rapidly. While Guatemala continues to benefit from prudent macroeconomic management, emerging external pressure could increase risks in coming months. Specifically, the crisis in Iran is a serious concern.
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