EL SALVADOR: They still love him – weak economy and all
El Salvador experienced deflation in October, for the third month in a row, while core inflation has remained at virtually zero for the past 12 months. Economic activity continued to gradually slow, as merchandise exports fell, and foreign remittances and lending to the private sector were depressed. Such performance doesn’t coincide with the improved public confidence in politicians and the political process, though this is unsurprising, as most of the economic deceleration comes from abroad, particularly from the slowdown of exports and remittances. President Nayib Bukele, after six months in office, continues to experience favorable perceptions, despite most economic indicators’ poor performance. Some aspects other than the macroeconomy have led to a positive view of Bukele’s management. That’s the case in his efforts to improve international relations, particularly with the United States, and his emphasis on improving public security, and taking new approaches to combat crime and violence. Local banking representatives also perceive greater multilateral financial institution interest in supporting the country, which would favor future investment and growth.
In Guatemala, closeness to the January 14th Inauguration Day is generating a better mood about economic prospects. The private sector confidence index on economic activity in October broke the 50% barrier for the first time in more than two years, signaling better near-term sentiment. The change in expectations was accompanied by better readings in the Monthly Index of Economic Activity, whose original series showed an increase of 4.2% y/y as of September. Inflation rose again, after three months of decline in the CPI. Monthly inflation in October was 0.7%, taking the y/y rate to 2.17%. Bank of Guatemala and private sector analysts see the yearend rate in the neighborhood of 4%.
In Costa Rica, the government´s financial situation is moving in the right direction, although a permanent solution still seems far ahead. The placement of $1.5 billion of Eurobonds in international markets, executed November 12th, increased the opportunity to manage government cash flow with a longer-term horizon, and opened the door for a sustained reduction in interest rates. Fiscal reform, in effect since July, is starting to deliver positive results: in August-October, the primary deficit was 40.7%, lower than the deficit of 2018, as tax revenues increased 18.1%, while total expenditures excluding interest payments grew 11.8%. Attention is shifting from the fiscal situation toward the production slowdown, and the relatively high unemployment rate. Real appreciation of the colon is another source of concern, especially now that the government has $1.5 billion in its vaults.
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