COSTA RICA: Hesitation could hurt
Costa Rica’s economic outlook in 2019 is expected to be similar to that of 2018, in terms of the main macroeconomic indicators. The fiscal reform package approved in December 2018 was significant enough to curve negative expectations through H2 2018, when uncertainty and lack of confidence over the government’s ability to meet its financial commitments increased. But the insufficiency of the reform to restore fiscal sustainability is well known, and the need for additional adjustment measures persists. That raises a source of uncertainty likely to gradually dissipate, as long as the government succeeds with those measures. The general mood of investors and creditors about the country’s economic perspectives is not positive, in our opinion. We think the wait-and-see attitude of H2 2018 will continue to affect consumers’ and investors’ decisions, reducing the chances of economic growth recovery. A similar attitude among creditors could lead to higher financing costs, at least during 2019, when we expect the Treasury to face financing stress, and to need funds equivalent to about 13% of GDP. That’s a key assumption of our short-term outlook, with conditions this year similar to those of 2018. For 2020, we expect some improvement, as long as public policies move in the right direction.
El Salvador is digesting populist Nayib Bukele’s first-round win. Though Bukele was elected February 3rd, and takes office June 1st, he’s so far shown little of what is to come. Besides a few statements on political issues and the commitment to fiscal discipline included in his governance plan, not much is known about how Bukele plans to fulfill his campaign promises. No information has been disclosed yet about his new cabinet, except for the usual conjecturing. There were no significant changes of macroeconomic indicators in February, either.
In Guatemala, as Election Day approaches on June 16th, the political field is growing more crowded. Almost 20 political parties have chosen candidates, and the first round could see a contest among 20 to 25 candidates. With so many contenders, it will be very difficult for any one candidate to garner the 50% of the vote required to win in the first round. It’s likelier that the two top vote getters will compete in a runoff, planned for August 4th or August 11th.
Major economic indicators suggest that economic activity is recovering slightly, while the external situation continues to be under control of the authorities. The IMAE-trend cycle increased 3.6% y/y as of December 2018, and the latest GDP estimate puts 2018 growth at 3.1%. January inflation remains within Bank of Guatemala’s target range, despite a 1.35% m/m increase in CPI.Net international reserves, at 1.4 times the monetary base, bring good support for currency stability.
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