COSTA RICA: Dismal news

CENTRAL AMERICA - Report 31 Oct 2018 by Francisco de Paula Gutiérrez and Felix Delgado

Worrying economic news continues in Costa Rica. Unlike what we’ve highlighted in previous reports, negative trends now dominate short-term economic indicator trends: we’re seeing a slowdown in economic activity, merchandise and services exports, credit to the private sector and fiscal revenues. Therefore, the increasing trade deficit places pressure on FX demand. At the same time, the fiscal deficit continues to increase, and willingness to continue financing the government has weakened. The first important step of fiscal reform in Congress was overcome with the approval of the bill on the first reading. But opposition from several groups that still maintain strikes against certain public services, like education, as well as of the Court of Justice, maintains significant uncertainty about the future of the bill. Developments during the next five or six weeks will be crucial for a better assessment of the political and economic outlook.

In El Salvador, short-term economic indicators continue evolving along the lines of trends we’ve discussed in previous reports: moderate economic activity, worsening of the trade deficit and fiscal finances, inflation rising slowly and a modest increase in bank lending. Political conditions remain similar to those observed after the legislative elections of March 2018, with little interest in dealing with key issues such as the fiscal deficit, and growing public debt. There’s no clear frontrunner in the presidential campaign in the runup to the February 3rd election, partly because polls still show a large number of undecided voters. What looks clear is that, unless something changes in the following three months, the election will go to a second round, with the FMLN barely represented.

In Guatemala, the private sector’s confidence index of economic activity dropped almost nine points, to just 26.67 out of 100, down from 35.42 in August. Coincidentally, that level is fairly close to that of September 2017 (when it was 25), a time when conflict between the presidential administration and the CICIG was also very intense. Expectations for the business climate also dropped: none of the respondents to the expectation survey thought the business climate in the forthcoming six months would be better than it was in the previous six months.

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