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Central America Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 55 pages

Core Views

Central American outperformers Costa Rica and Panama are facinga more challenging road ahead in the coming years. As real GDPgrowth slows in Panama on the back of the end of canal construction,establishing fiscal discipline will be crucial. Should the countryfail to rein in spending in an environment of lower growth, this wouldlikely cool investor enthusiasm toward the country. Similarly, CostaRica is also facing a challenging fiscal outlook – a situation whichis only exacerbated by the fragmented political environment.In contrast, our short-term outlook for most of Central America’sunderperformers is brightening. Guatemala, Honduras and El Salvadorwill benefit from stronger US demand for their manufacturedgoods, rising remittance inflows and lower oil prices in the quartersahead. That said, significant security risks will temper foreign directinvestment in these countries over the next five years and the riskof prolonged social unrest in the wake of recent corruption scandalshas risen. Over the longer-term the entry into force of the Trans-Pacific Partnership will offer increased headwinds to these countries’manufacturing sectors.

Nicaragua’s macroeconomic position is alsoespecially vulnerable, given its strong ties to Venezuela. Our coreview is for a moderate slowdown in growth in coming years due toan end to the Tariff Preference Level programme and our view thatVenezuela will modestly reduce assistance to Nicaragua. However,if Venezuela were to suddenly cut off aid under the ALBA-TCPprogramme, this would see a sharp downturn in Nicaraguan growthand rising pressure on the country’s macroeconomic buffers.Major Forecast ChangesWe have revised Guatemala’s real GDP growth. After the countryrecorded 4.2% real GDP growth in 2014, we forecast it will post 4.0%growth in 2015 (downgraded from our previous forecast of 4.4%) and3.7% growth in 2016 (revised from 4.0%). While this is still relativelyrobust growth, these forecasts reflect our view that political unrestin the wake of the recent corruption scandals will have a significantnegative impact over the coming quarters.Panama will face structural headwinds to growth in the yearsahead, as construction sector activity slows. The financial sectorand consumer-facing sectors are poised to modestly boost growth.However, we do not believe that an only modest acceleration inthose sectors will be enough to offset the tepid real growth. Giventhese economic challenges, we have downgraded our 2016 realGDP growth forecast for Panama to 6.0% from 6.8% previously, andaverage 5.3% between 2017 and 2024 – well below the averageheadline figure of 8.2% over the past decade.

Table Of Contents

Central America Country Risk Report Q1 2016
Executive Summary 15
Core Views 15
Major Forecast Changes 15
Key Risks 15
Political Outlook - Regional 17
SWOT Analysis 17
Regional Political Outlook 18
Long-Term Political Outlook 18
Central America Facing Continued Challenges To Political Stability18
Economic Outlook - Regional 21
SWOT Analysis 21
Chapter 11: Political Outlook - Costa Rica 23
Domestic Politics 23
Deteriorating Security Outlook Poses Little Risk To Investment Environment23
Chapter 12: Economic Outlook - Costa Rica 25
Economic Growth Outlook 25
External Headwinds Will Constrain Economic Growth25
TABLE: GDP BY EXPENDITURE25
Chapter 21: Political Outlook - El Salvador 27
Domestic Politics 27
Security Tax Offers Limited Benefit27
Chapter 22: Economic Outlook - El Salvador 29
External Trade And Investment Outlook 29
Stronger US Demand Will Bolster External Account Dynamics29
TABLE: CURRENT ACCOUNT29
Chapter 31: Political Outlook - Guatemala 31
Domestic Politics 31
Morales' Election Is No Panacea For Corruption31
TABLE: SECOND ROUND ELECTION RESULTS31
Long-Term Political Outlook 33
Corruption And Social Challenges Will Weigh On Outlook33
Chapter 32: Economic Outlook - Guatemala37
Economic Growth Outlook37
Corruption Scandals Will Temper Growth37
TABLE: GDP BY EXPEDNITURE37
Chapter 41: Political Outlook - Honduras39
Domestic Politics39
Anti-Corruption Mission To Offer Limited Benefits39
Chapter 42: Economic Outlook - Honduras41
External Trade And Investment Outlook 41
TPP Will Pose Long-Term Headwinds To Exports41
TABLE: CURRENT ACCOUNT41
TABLE: APPAREL AND TEXTILE DUTIES PRE-TPP, %42
Chapter 51: Political Outlook - Nicaragua45
Domestic Politics 45
Cuban Migrant Crisis To Hinder Trade And Raise Tensions45
Chapter 52: Economic Outlook - Nicaragua47
Economic Growth Outlook 47
Faltering Business Confidence Will Weigh On Growth47
Chapter 61: Political Outlook - Panama49
Domestic Politics 49
Corruption Will Remain A Persistent Threat49
Chapter 62: Economic Outlook - Panama51
Economic Growth Outlook51
Limited Construction Expansion Will Limit Growth51
TABLE: ECONOMIC ACTIVITY51
Chapter 7: BMI Global Macro Outlook53
Global Outlook53
Emerging Markets Bending, Not Breaking53
TABLE: GLOBAL ASSUMPTIONS53
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %54
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %54
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %55

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