Growing and stable, despite pressure from the north
Costa Rica closes 2025 with solid headline data, but growing underlying weaknesses. GDP is set to expand by about 4.2%, yet most of the strength comes from free trade zones, driven almost entirely by medical device manufacturing—now 42% of goods exports, and heavily exposed to U.S. tariff and reshoring risks. Recent indicators already show this momentum cooling. The domestic economy, which makes up 85% of GDP, is far weaker, growing only around 3% amid tight policy conditions and structural limitations. Income data suggest an 8% rise, but consumption is slowing, reflecting that much of the “improvement” comes from low or negative inflation rather than from genuine gains. The labor market tells the same story: unemployment fell to 5.7%, not because of job creation, but because fewer people are working. Fiscal revenues are barely growing (2.9% y/y) despite nominal GDP near 5%, partly due to the sharp colón appreciation that reduces profits and the tax base. Currency valuation at nearly ₡500 per dollar—the colón’s strongest level in 17 years—has eroded competitiveness, coinciding with relocations of the Costa Rica operations of companies such as Intel and Pfizer. Overall, the widening gap between a booming FTZ sector and a stagnant domestic economy, combined with an overvalued currency and persistently low inflation, exposes structural imbalances that demand attention.
El Salvador maintains its upward economic activity trend. That led us to upgrade our 2025 growth projection, which tended to consolidate after the release of August 2025 monthly economic activity index data. A larger and longer-than-expected increase of merchandise exports and inflows of foreign remittances is a key factor for understanding current trends. We still sail with insufficient evidence to discard our assumed transience of this phenomenon, amidst uncertainty due to the U.S. protectionist trade and immigration policies, and the expected contractionary effects of the fiscal adjustment program under the EFF agreement with the IMF. Close monitoring of developments in coming months is a must. Expectations surrounding the possible content of a new pension reform prevails, since its details are still unknown. Fiscal conditions improved substantially in September 2025, through a combination of higher revenues and expenditure moderation -- thereby reducing the risk of non-compliance with the fiscal targets agreed upon with the IMF.
Guatemala closes 2025 with solid macroeconomic stability and a favorable outlook for 2026, standing out as one of the region’s most resilient economies, external uncertainty and U.S. trade policy shifts notwithstanding. Economic activity has strengthened, with IMAE growth of nearly 4% and exports accelerating from 2.6% in 2024 to 8% in 2025, partly driven by U.S. import front loading ahead of higher tariffs. Remittances—90% of which come from the United States—surged by roughly 18%, and now exceed export earnings by nearly $10 billion, fueling consumption, which grew 4.2%. Business confidence rebounded to 58 points, while inflation fell to 1.3%, well below the historical average, creating room for rate cuts and supporting household sentiment. Strong export and remittance inflows have pushed the quetzal to appreciate slightly, prompting the Bank of Guatemala to intervene heavily, purchasing $3.5 billion, and driving international reserves to a record $31.5 billion (26% of GDP). Fiscal accounts weakened as revenues grew 9.3% but spending jumped 22%, resulting in a 1% of GDP deficit; however, public debt remains low at around 28% of GDP. Despite tariff-related uncertainty ahead, Guatemala’s fundamentals—robust remittances, rising exports, low inflation, strong reserves and relative policy predictability—continue to provide a buffer against global volatility, and position the country favorably for the year ahead.
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