The International Monetary Fund (IMF) maintains the estimates of economic growth for Guatemala and the Central American countries, according to the review released on Tuesday, October 22 at the annual meetings.
However, the institution also warns of some risks associated with global geopolitical tensions, which may have some kind of impact on small economies, such as Central America.
In its report it indicates that the global disinflation process continues, and inflation in services remains high in several regions, so it recommends highlighting the importance of understanding sectoral dynamics and calibrating monetary policy accordingly.
Scenario for Guatemala
In the review of the aforementioned organization, it was confirmed that the economy measured by the gross domestic product (GDP) for the country will close at 3.5% in 2024 and for 2025 it is located at 3.6%.
In this regard, Álvaro González Ricci, president of the Bank of Guatemala (Banguat), pointed out that the IMF’s forecasts for Guatemala are consistent with the estimates of the central bank, in the sense that for this year the economy would grow at its potential, which is 3.5% and that in the following year it would grow a little more than the potential. According to Banguat it would be 3.7%.
González Ricci explained that, in its medium-term projections, the IMF estimates that the economy would be growing up to 3.9% in 2029.
For Fernando Spross, associate researcher at the Foundation for the Development of Guatemala (Fundesa), although the growth forecasts for this year and the next are consistent with the expectations of normal growth in Guatemala, between 3.5% and 4% annually, these are below the potential growth of the economy.
He recalled what the IMF stated in its latest report, in which “the Guatemalan economy continues to show notable stability and solidity thanks to a long history of prudent monetary and fiscal policies – with inflation on target, large international reserves, contained fiscal deficits, a low public debt/GDP – which continues to fall.”
So, in order to have greater economic growth in the long term, it is necessary to increase the productivity of the economy, although this requires actions and reforms in different sectors, highlighting the necessary improvement in the quality of infrastructure, including roads, ports, airports, connectivity, among others, said the Fundesa researcher.
Influencing factors
Regarding the pillars and axes that will move the national productive system, González Ricci assured that the greater growth of Guatemala in the coming years is based on greater public spending on infrastructure, an improvement in investment and solid private consumption, based on the credit activity of local banks, as well as a constant flow of family remittances.
Spross points out that the growth of bank credit to the private sector is in the order of 14.5% annually, given greater opportunities for development of the credit market and ample liquidity in the financial markets. He also reiterated that it is important to remember that bank credit to the private sector constitutes the main source of financing for economic activity, which is viable through the process of financial intermediation carried out by the banking sector. “In order to have greater long-term economic growth, it is necessary to increase the productivity of the economy, although this requires actions and reforms in different sectors, highlighting the necessary improvement in the quality of infrastructure, including roads, ports, airports, connectivity”
Fernando Spross, associate researcher at Fundesa
In addition, the robust growth of private consumption induced by the growth in the flow of remittances received from the United States, with an annual growth of 7.2% until September, reaches an accumulated income until September of US$15,835.60 million, which is equivalent to about Q122,246 million, so an amount equivalent to 20% of GDP is expected by the end of the year.
On the other hand, since August, the recovery of growth in exports has been observed, breaking the cycle of deceleration that has been in place since the end of last year. In this sense, until the end of August, the total value of accumulated exports of goods registered an amount of US$9,926.36 million, 1% higher than that registered until August of last year.
Finally, another source of economic growth is given by public spending that is possible due to the tax collection of the central government.
In this regard, the collection of net tax revenues of the central government accumulated to the month of September reached a total of Q75,598.87 million, which means an interannual growth of 7.3% compared to the accumulated to the month of September 2023.
It is important to mention that at As in the last three years, net collection exceeded the goal established by the Ministry of Finance and the SAT, until September, by Q11,195 million. This difference between the expected flow of tax revenues, which is greater than expected, could constitute an important fund for public investments that generate greater competitiveness and productivity in the economy.
And from the perspective of the origin of production, in terms of the growth of the productive sectors, estimated by the growth of the monthly index of economic activity (Imae), until August, an annual growth of 3.48% is observed, influenced by the growth of economic activities in trade and vehicle repair; manufacturing industries; financial and insurance activities; real estate activities; and administrative and support services activities.
Risk map for the economy
In light of the IMF’s warnings about possible risks to the global economy, those consulted also provided a perspective to economic agents.
The risks that have been identified can influence both positively and negatively, Spross believes.
“The IMF’s forecasts for Guatemala are consistent with the central bank’s estimates, in the sense that for this year the economy would grow at its potential, which is 3.5% and that in the following year it would grow a little more than the potential”
Álvaro González Ricci, president of Banguat
In his opinion, on the positive side, we can mention the decrease in inflationary pressures at an international level, which is accompanied by the normalization of monetary policies in most countries, after the uncertainty of recent years and a decrease in fuel prices.
On the negative side, he highlights, on the one hand, the increase in geopolitical tensions in the Middle East, and the continuation of the Ukraine-Russia conflict, which at a certain moment may affect supply chains worldwide, and on the other, the uncertainty over the result of the presidential elections in the United States, which could cause changes in the commercial, fiscal and immigration policies of our main commercial partner.
Finally, the president of the central bank of Guatemala expressed that external risks are related to geopolitical risks in the Middle East, trade tensions between the United States of America and China, as well as the risk that the Asian giant grows less than expected, due to weaknesses in its real estate market, which could be transferred to the financial system and affect economic activity in that country.
Specifically in the case of the United States, being the main commercial partner, a strong slowdown in that economy, although not foreseen in the IMF scenarios, could affect Guatemala, through a lower volume of exports to that market and a lower flow of family remittances.
However, he clarified that Guatemala’s macroeconomy remains solid, that the forecasts of greater public spending and an increase in private investment are positive internal factors that allow maintaining a positive scenario of economic growth, but realistic.
This article has been translated after first appearing in Prensa Libre