Robust rebound, with political complications
Costa Rica’s Christmas season promises more economic activity, as is usual at this time of year, while unemployment figures are slowly falling. The virtual removal of mobility restrictions and more flexibility for gathering have been key measures, favored by a good pace of vaccination, while new contagion cases have receded. The rebound of economic activity moderated towards Q4, as should be expected after the overshooting. Fiscal conditions evolved better than expected, via a combination of greater revenues and moderated expenditures, in which the former reflect a greater yield of the 2018 fiscal reform. The government won’t have liquidity problems in fulfilling this year’s obligations. Both fiscal aspects were key in Moody’s upgrade of the sovereign outlook to stable. Pressures on domestic prices and the FX market moved the Central Bank to change its expansionary posture. The electoral process advances towards the February 6th general elections, with uncertainty about the result, and signals that a second round in April 2022 will be necessary.
El Salvador’s political struggle with the United States continues to worsen. Therefore, the medium-term path for public policy orientation and international relations is quite uncertain to us. The economy continues growing at a good pace, hand in hand with the still-high popularity of President Nayib Bukele. The fiscal situation improved this year compared to that of 2020, although not enough to start a true gradual adjustment program. So, there are growing doubts about the capacity of the government to obtain the external financing required to cope with the service of the huge public debt over 90% of GDP in the near future. The Bukele’s administration’s road map to face these adverse conditions is anything but clear. The star projects associated with bitcoins are mentioned as the drivers of new investment and financing options that would dynamize the economy and solve the debt problems. But the IMF and the international financial markets believe the opposite, and value of external debt has plunged this year.
Guatemala´s economy ends 2021 with favorable results, and a good outlook for 2022. The recovery, post pandemic shock, pushed the economic growth rate to its highest level in 10 years. Nevertheless, several external forces that helped speed up recovery in 2021 won’t be as positive in 2022. These include a lower U.S. growth rate, higher inflation, elevated international oil prices and the persistence of the containers crisis shortage. On the domestic front, several problems must be monitored. The most important is the slow progress toward vaccination, which makes the country vulnerable to new waves of the pandemic. On the political side, the government has a good outlook: the budget for 2022 was approved by Congress, and there is a new political coalition. We foresee that the authorities will focus, in the improvement of vaccine rollout, on domestic security and the promotion of more foreign direct investment. Despite all these risks, the external outlook will still be favorable, and will help drive growth in coming months.
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