Surprisingly robust, as remittances lead the way
With Costa Rica less than two months away from the February 1 presidential and congressional elections, government candidate Laura Fernández continues to lead in the polls. But given the high proportion of undecided voters, it is still unclear whether the election will be decided in the first round, where the top candidate must obtain at least 40% of the votes to win. In our opinion, these elections will be key in defining whether Costa Rica will continue trusting political negotiation over major issues or will instead move towards more authoritarian schemes, as well as establish whether the traditional political parties, which have governed politics since the middle of the 20th century, will continue to dominate. Macroeconomic indicators show no significant changes in the trends discussed in our November report. Economic activity continues moving within a range of 4% - 4.5% y/y. Consumer prices since May 2025 again resisted rebounding to positive annual rates of change, while the colon’s value remained at around 500 per dollar. Banking credit to the private sector has risen by around 6% y/y during the three months to October. Fiscal conditions have sustained the improvement observed since mid-year.
El Salvador’s political conditions are stable. President Nayib Bukele’s popularity remains high, based on his successful crime and violence-fighting strategy that has turned the country into one of safest in Latin America in terms of public security. Certainly, the exception regime of constitutional liberties and the authoritarian procedures has been criticized both domestically and abroad, yet the public is supportive. On the economic front, once the unsustainability of public finances has been tackled through the IMF EFF program, the next challenge for the government is a comprehensive set of policies to increase productivity and competitiveness, as a way to increase incomes and provide better living conditions and purchasing power. Economic activity has recently been advancing at a good pace. A substantial pickup can be observed in the monthly index of economic activity in Q3 2025. The boom of foreign remittances and the abundance of liquidity, as well as increased confidence thanks to the political alliances of the Bukele administration, appear to be behind this unexpectedly good performance.
Despite heightened global uncertainty and shifts in U.S. trade policy, Guatemala outperformed expectations in 2025, supported by strong external inflows and resilient domestic demand. The main driver was a sharp increase in remittances, up nearly 18% y/y on a 12-month cumulative basis, reflecting continued strength in the U.S. labor market along with precautionary transfers amid tighter U.S. migration policies. These inflows played a critical role in sustaining household incomes, and in keeping private consumption growing by more than 4%. A second supportive channel was a temporary acceleration in goods exports, which expanded by roughly 8% in 2025 as firms front-loaded shipments ahead of potential changes in U.S. trade conditions. Together, robust remittances and exports strengthened Guatemala’s external position, pushing international reserves above $32 billion (about 26.5% of GDP), the highest level on record. As a result, GDP growth is estimated at nearly 4% in 2025, exceeding potential growth. Inflation remained subdued at 1.7%, and the quetzal experienced only mild appreciation pressures. While fiscal policy turned more expansionary, public debt remains low, preserving macroeconomic stability heading into 2026.
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