World Bank Predicts Slow Growth for Nicaragua

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By LatAm Reports Editor

Despite Nicaragua’s rapprochement with China, the Gross Domestic Product will expand at very low rates this year and next, which contrasts with the optimism of Daniel Ortega’s regime that hopes that the rapprochement with the Asian giant will give a new boost to the growth rate, after the loss of momentum in the income of remittances.

The World Bank, in an update of its global projections, expects that Nicaragua’s GDP over the next two years will not exceed 3.5 percent growth, which would be the best rate since 2021, when a year after the pandemic, it was 10.3 percent.

In 2023, according to estimates of the financial agency, the rate would have been 3.1 percent for Nicaragua, although the Central Bank (NCB) puts it at 4.5 percent, according to the president of that institution, Ovidio Reyes, said last week.

Did that growth come to land (2021) because of the recovery factor of the pandemic and now we are growing about 4.5 percent. That is, the economy, that is the potential growth rate that we believe our country has at the moment and that is noticeable in the trade dynamics, in sales, in economic dynamics, in transport… The average GDP of the first three quarters is 4.5 percent, the last quarter is reflecting a rate of 6 percent, we would be growing 4.5 percent in 2023, Reyes said.

The World Bank, which at the end of each annual cycle is attached to the official figure, indicates that for this year Nicaragua’s growth would be 3.2 percent, which would be below the Central American average, although better than 2.3 percent for Latin America and the Caribbean in general.

For Central America, sustained growth is expected, with rates of 3.7 percent in 2024 and 3.8 percent in 2025. This perspective is based on a moderate increase in remittances, especially in 2024, he says.

Panama at the top

At the Central American level, Panama will again lead the region’s growth this year with 4.6 percent, followed by Costa Rica with 3.9 percent, according to agency estimates.

And despite the political upheaval over the change of government, Guatemala would rank third this year, with a rate of 3.5 percent.

In fourth place would be Nicaragua and Honduras with the same rate (3.2 percent) and in the El Salvador queue, which, although its government assures that the country is now more attractive for investment for greater security, its expansion would be 2.3 percent.

The World Bank warned that the outlook for the entire hemisphere presents as a risk – the escalation of geopolitical tensions, especially in the Middle East, could disrupt energy markets and cause oil prices to rise. Extreme weather events, intensified by climate change, pose additional threats, in particular to climate-sensitive sectors such as agriculture, energy and fisheries.

He also indicated that persistent core inflation in advanced economies could be accompanied by high interest rates over an extended period, which would limit the region ' s monetary and fiscal policies.

In addition, a more abrupt-than-expected slowdown in the Chinese economy could have significant side effects on external demand, which would affect the region’s commodity exports, he added.

The latter tarnishes Nicaragua’s expectations, which hopes that after lower remittance growth, new trade relations with China will give a boost to the economy.

The export sector is the sector that will continue to maintain the momentum of the economy, and there we must take advantage of everything, we must take advantage of prices, we must take advantage of the reduction of costs that has been observed, many stabilized after they had great increases. Now these are stabilizing. That has even contributed to international price inflation also starting to find a way and the economy will take advantage of all these elements, Reyes said last week.

He added: “The new Trade Agreements, the FTA has just been signed with China, represents a great opportunity, because we are talking about almost, or all, our export products being at zero tariff rate, and there are other goods that are also going to be deducted over time; therefore, the country will be inserted into that dynamic and in those markets.

Then the export sector is the first driving factor that will generate growth, of course, that if the FTA is taken advantage of China, an additional boost factor is generated to this element, he said. “That is, our estimate does not take into account the FTA with China, so everything that comes along that route is going to increase growth,” he added.

The 2025 outlook

But Nicaragua’s prospects for 2025 also aim to be more optimistic. The World Bank expects the local economy to expand by 3.5 percent, which would be the top rate since 2021.

In contrast, Panama would continue to lead that rate in that year, with 5.3 percent; Costa Rica would follow with 3.6 percent; then Guatemala with 3.5 percent; Honduras with 3.4 percent; and in the last position El Salvador would follow with 2.3 percent. Nicaragua only in front of the Salvadoran economy.

This would be in line with what was warned in June last year by The Economist Intelligence Unit (EIU), of the prestigious British publisher The Economist, which noted that Ortega will remain in power, but will rest on an economy with mediocre growth. Several of these trends will last in 2024-2027, maintaining growth at an average of 2 percent per year.

In his report, he points out that this year the growth rate will be 2.2 percent, in 2025 and 2026 it will grow 1.9 percent each of those years, and in 2027 it will increase 2 percent.

Nicaragua’s prospects for economic growth are tarnished by recurrent political conflicts and little confidence in the rule of law – despite the lucrative opportunities in mining, energy and manufacturing. Nicaragua will therefore remain one of the poorest countries in Central America.

For its part, the World Bank indicated that for Latin America in the long term, the region will have to face persistent challenges. The potential for economic growth is declining in the context of the slowdown in total factor productivity and population ageing.

Several economists have pointed out that Nicaragua will have to face this population ageing with a availability of labor in the market decimated by the migration of the last three years, which would exceed 500 thousand people.

This article has been translated from the original which first appeared in La Prensa NI