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Central America Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 57 pages

Core Views

The region's economic trajectory remains divergent. Despite our expectations for slower real GDP growth in Panama in the next several years, it will remain the regional outperformer. On the other hand, we have a more mixed outlook for growth in the ‘northern triangle' countries, with Guatemala likely to fare better than Honduras and
El Salvador. Central American will remain heavily dependent on the performance of the US economy, which remains a major source for remittance flows, and a destination for goods exports. Drug-related violence and high levels of insecurity will remain the major concerns for most of the region's electorate, although such concerns will be particularly elevated among the ‘northern triangle' states of Guatemala, El Salvador and Honduras.

Major Forecast Changes

Weaker credit growth and remittance inflows will drive a slowdown in household consumption in Nicaragua in the coming months. As such, we have revised down our forecasts for 2014 real private consumption growth from 2.8% to 2.0%, and real imports of goods and services from 10.0% to 7.0%. This has seen our forecast for real GDP growth fall from 5.1% to 4.3%.

A number of downside pressures on the Costa Rican colón persist, including a widening current account deficit, but we believe that the Banco Central de Costa Rica (BCCR) will defend the unit in the event of another sell-off, as significant currency depreciation in the year-to-date has heightened the bank's concerns about rising inflation and inflation expectations. Given our view for the unit to range trade in the coming months, we are revising our average exchange rate forecast for 2014 to CRC542.0/USD, from CRC535.0/USD previously, implying an average exchange rate of CRC546.1/USD for the duration of the year.

Table Of Contents

Central America Business Forecast Report Q3 2014
Executive Summary... 15
Core Views15
Major Forecast Changes..15
Key Risk To Outlook15
Political Outlook - Regional... 17
SWOT Analysis 17
Long-Term Political Outlook . 19
Central America Facing Continued Challenges To Political Stability..19
Economic Outlook - Regional 23
SWOT Analysis 23
Regional Infrastructure .. 25
Transport Infrastructure Progresses Despite Challenging Environment25
Regional Agribusiness/Coffee... 26
Output Recovery In The Making..26
table: Coffee Production and Consumption ('000 60 kg bags).27
Chapter 1.1: Political Outlook - Costa Rica.. 29
Domestic Politics 29
Radical Changes To Economic Policy Unlikely Under New Government...29
Chapter 1.2: Economic Outlook - Costa Rica.. 31
Currency Forecast... 31
CRC: Central Bank Intervention To Stem Further Depreciation...31
table: BMI Currency Forecast...31
table: Exchange Rate32
Chapter 2.1: Political Outlook - El Salvador. 33
Domestic Politics 33
Security Concerns Further Threaten FMLN Mandate33
Chapter 2.2: Economic Outlook - El Salvador 35
Economic Activity... 35
Economic Growth To Reverse Downward Trend In 2014..35
El Salvador's economic growth remains under pressure due to low growth in private consumption, and the poor performance of the
agricultural sector which weighed on net exports.
table: Economic Activity..35
Chapter 3.1: Political Outlook - Guatemala.. 37
Domestic Politics 37
Institutional Weakness To Hamper Gains In Fight Against Crime...37
Chapter 3.2: Economic Outlook - Guatemala.. 39
Economic Activity... 39
Better External Conditions To Bolster Current Account...39
Following a better-than-expected performance in the final quarter of 2013, Guatemala's current account deficit for the year came in
narrower than we had forecast, and we believe that improving external conditions will help to maintain the trend of improving balance of
payments dynamics over the coming quarters.
table: Current Account...40
Chapter 4.1: Political Outlook - Honduras 41
Domestic Politics 41
Violence Edging Lower, But Concerns About Militarisation A Rising Risk.41
Chapter 4.2: Economic Outlook - Honduras 43
Economic Activity... 43
Refinancing And Reform To Improve Fiscal Outlook43
The government's plans to refinance its debt to benefit from lower external debt costs should help it lower its debt burden and improve
its fiscal position over the coming years.
table: Fiscal Policy44
Chapter 5.1: Political Outlook - Nicaragua... 45
Domestic Politics 45
Security Environment To Remain Envy Of Rough Neighbourhood.45
Chapter 5.2: Economic Outlook - Nicaragua... 37
Economic Activity... 47
Weaker Consumer To Drive Growth Lower In 2014...47
A drop in remittance inflows and credit growth point to weaker household consumption in Nicaragua in 2014, underpinning a downwards
revision to our real GDP growth forecast.
table: Economic Activity..47
Chapter 6.1: Political Outlook - Panama.. 49
Domestic Politics 49
Significant Policy Shift On The Cards Following Varela Victory..49
Chapter 6.2: Economic Outlook - Panama... 51
Economic Activity... 51
Moderately Narrower Current Account Shortfall Ahead51
We foresee only a moderate narrowing of Panama's current account deficit this year, following a significant widening of the shortfall in
table: Current Account...52
Emerging Market Deceleration52
Chapter 7:BMI Global Assumptions.. 55
Global Outlook. 55
Emerging Market Deceleration55
Table: Global Assumptions.55
Table: Developed States, Real GDP GrowtH, %...56
Table: Emerging Markets, Real GDP Growth, %..57

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