Glimmers of hope
Costa Rica’s economic activity trajectory continues at a relatively good pace, within a very uncertain environment in the country’s dual economy, a situation that has persisted for several years. Since Q1 2024 economic activity has been slowing in the definitive regime, but rising in the FTZ, in the latter backed by larger exports, mainly of medical devices. Tourist visits and other services exports have slowed since H2 2024. FDI also decelerated in H1 2025. Medical devices exports, representing almost half of the FTZ total, are at risk of being hit by restrictive U.S. trade measures for national security reasons. These mixed signals pose a challenge to explaining the fall of the unemployment rate to 6%, its lowest level since the current methodology was adopted about 15 years ago. In politics, campaigning in the runup to the February 1st, 2026 presidential and congressional elections has begun, with a large number of candidates running for president. That anticipates the low probability a first-round win for a new president, who will serve from May 2026 to May 2030.
In El Salvador, revision of our short-term economic outlook highlights the good evolution of economic activity shown by monthly indicators to H1 2025, which continue pointing toward a better performance than foreseen six months ago. The boom of external trade and foreign remittances is lasting longer than expected. It may well be that the permanent effects of U.S. tariffs and actions affecting immigration and FDI will be less than expected. Indicators over Q4 2025 and Q1 2026 should shed light on these issues. Moreover, political warmth between President Nayib Bukele and U.S. President Donald Trump is tending to drive away uncertainty, and to favor production and investment decisions. We don’t discard the idea that the better-than-expected performance of economic activity this year is closely associated with improved confidence, amid growing uncertainty elsewhere.
Guatemala has moved closer to investment grade, after Fitch Ratings upgraded its sovereign rating to BB+ from BB, highlighting the country’s solid macroeconomic stability, low public debt (below 30% of GDP) and steady growth of nearly 4%. However, Guatemala’s progress remains constrained by structural weaknesses that limit sustainable development. Economic expansion continues to depend heavily upon remittances rather than domestic investment or productivity gains. Remittances now represent more than 150% of total merchandise exports. Meanwhile, the government’s ability to respond to shocks or to boost infrastructure is constrained by weak institutional capacity and low tax revenues. Despite efforts by President Bernardo Arévalo to strengthen governance and to increase public investment, political challenges and eroding confidence have slowed reform momentum. Public concerns remain focused on the cost of living, insecurity and limited job creation, while high emigration rates reflect persistent frustration. In this context, Guatemala’s path toward investment grade will depend less upon macroeconomic stability and more on diversifying growth, and deepening institutional reform.
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