Coping with the coronavirus threat
In Guatemala, President Alejandro Giammattei, who took office on January 14th, is facing what will likely be the toughest challenge of his term. The coronavirus pandemic has already reached Guatemala, and the short-term outlook for the country is changing dramatically. Until February, we expected the economy to be growing by 3.5%, with relative currency stability, and a positive current account. We now expect recession for part of the year, with higher unemployment, deterioration in external accounts as exports and private remittances diminish, fiscal pressures, and currency pressures that pushed the quetzal down to 7.92 on the dollar by March 25th, from 7.65 on March 15th. Bank of Guatemala had already reduced its GDP forecast to 0.5%-1.5%, from 3.1%-4.1% in January. And we can’t rule out further downward revisions in coming weeks.
Costa Rica is also in the midst of its COVID-19 fight, as it tries to minimize the costs on lives, and the economic consequences that unfortunately threaten to be enormous. As in a war economy, disruptions everywhere in the productive chains are the unavoidable toll of the measures needed to stop the pandemic. The final cost will depend upon how fast the virus can be controlled, and how rapidly productive activity can resume. At this time, only partial appraisal of the probable final economic effects can be done -- but the pandemic is sure to have severe negative consequences on various macroeconomic indicators, such economic growth, employment and fiscal balances.
El Salvador saw COVID-19 cases appear late, compared with Costa Rica. Preventive measures were adopted early, before the first positive case was discovered on March 18th. The government declared a yellow alert on March 6th, including restrictions on the arrival of people from several European countries, China, South Korea and Asia. On March 13th, the government raised the alert to red, and proposed additional measures, leading Congress to approve a state of exception, temporarily suspending rights for 15 days (involving circulation restrictions, reinforcement of restrictions on people arriving from abroad, and prohibition of public meetings and performances). Congress also approved a 30-day state of emergency, easing government measures for applying sanitary limitations, resource availability and all of the special measures involved in the imposition of quarantines. Those actions were preventive, since at that point no confirmed cases of COVID-19 had been registered in the country. By March 24th, though, the authorities had confirmed seven cases, with no deaths.
This report went to press in the middle of the coronavirus crisis. Guatemala is just at the beginning of the process (there are just 25 confirmed cases as of this writing) but due to the social conditions of the country, the situation could become a real humanitarian crisis. This report was programmed to discuss our outlook for Guatemala for 2020 and 2021. Given the uncertainty regarding the development of the crisis, we are not presenting a formal outlook, but rather, a set of considerations regarding the direction we expect of the economy. That is why we analyze first the situation at the end of 2019, then present a base case, which is the forecast we made six weeks ago, and then close with our main conclusions regarding the nature of the effect.
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