Gazdasági elemzések
Guatemala

Guatemala

Population 17.6 million
GDP 4,354 US$
D
Country risk assessment
C
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 3.2 3.8 -2.5 3.5
Inflation (yearly average, %) 3.8 3.7 2.1 3.1
Budget balance (% GDP) -1.9 -2.3 -5.6 -4.5
Current account balance (% GDP) 0.8 2.4 3.8 2.3
Public debt (% GDP) 26.5 26.6 32.2 33.9

(e): Estimate (f): Forecast

STRENGTHS

  • Financial support from the United States and multilateral lenders
  • Free trade agreements with the U.S. and the EU
  • Geographic proximity to the United States and Mexico  
  • High potential for tourism, agriculture (bananas, coffee, sugar), mining, hydroelectricity and geothermal energy

WEAKNESSES

  • Social and political instability
  • Poor infrastructure
  • Vulnerable to external shocks (natural disasters and commodity prices)
  • Heavily reliant on low value-added industry and expatriate remittance flows
  • Low tax revenues
  • Rural poverty, inequalities, under-employment, informal economy, ethnic divisions
  • Security issues related to drug trafficking

Risk assessment

A more resilient economy than that of its neighbours

As the country least affected by the pandemic-fuelled recession in Central America, Guatemala will return to growth in 2021 with stronger fundamentals than its neighbours. Private consumption will remain the mainstay of domestic demand (88% of GDP in 2019) supported by expatriate remittances (14% of GDP) from the United States. The catch-up effect observed in these currency flows during the second half of 2020, after they came more or less to a standstill during the U.S. lockdown, is expected to fade in 2021. Unemployment is expected to decline more slowly among the U.S. Latino population than for the rest of the population. Accordingly, these flows are not expected to reach the record growth rates seen in 2019 while the poorest households were particularly affected by the storms of November 2020. Aid to the poorest, which was heavily scaled back in the first budget plan for 2021, will depend on the outcome of negotiations following the protests of November 2020.Inflation will remain low, at the bottom end of the central bank's target window (4 +/-1%), with oil prices still moderate. This should lead the central bank to continue its accommodative monetary policy, holding the policy rate at 1.75% to support the recovery. Investors are likely to remain cautious, held back by the business environment, which remains poor pending the reforms under the recovery plan, and worldwide uncertainty. External demand should see some recovery, despite being constrained by weaker U.S. demand, particularly for clothing. External demand for agricultural products should be more resilient. Public demand is expected to grow strongly as part of the stimulus package in the 2021 budget. The plan’s focus on infrastructure (60% of planned investments) should benefit the construction sector although adjustments are to be expected at the end of the budget negotiations. The agricultural sector (30% of the working population) is expected to suffer from the aftermath of the storms of November 2020, forcing the production of coffee, sugar and cardamom. However, it will remain highly exposed to climate risk. Activity in the manufacturing sector will grow to a lesser extent, with the clothing sector constrained by U.S. demand. The maquilas, with their focus on textile, pharmaceutical and agri-food production, will be the most affected, as they produce mainly for the United States. The tourist sector (8% of GDP) will still be too uncompetitive and will remain in recovery mode, with flows from Europe and the United States kept in check by persistent health fears. An uncontrolled resurgence of the pandemic, either in the country or among its main trading partners, could affect this scenario.

 

The external and financial situation remains favourable despite political tensions

While the first version of the budget already foresaw a deficit to finance infrastructure, the consultations should lead to an increase in social spending. With one of the lowest revenue collection rates in the region, expenditure will be partly financed by debt. Funding will be provided through government bonds and multilateral loans. Multilateral loans have been obtained from the IMF, the Inter-American Bank for Economic Cooperation, the Inter-American Development Bank and the World Bank. Thanks to these loans, Guatemala’s debt will remain largely under control.

Looking at the external accounts, the trade deficit is expected to increase, with the recovery in imports set to exceed that of exports. The revival of manufacturing production will increase demand for imported intermediate products, while higher oil prices will likely push up the import bill. On the export side, growth will be stymied by weakness in the clothing sector, and lower than expected agricultural exports following the storms at the end of 2020.. The balance of services should remain in the red as visitor numbers remain low. Expatriate remittance flows should largely cover the twin deficits, but the end of the catch-up effect in late 2020 will cause the current account surplus to narrow. The surplus, in combination with multilateral loans, will allow further consolidation of foreign exchange reserves, which covered the equivalent of ten months of imports in October 2020. These reserves will maintain the stability of the quetzal.

 

A tense political and social situation

In power since January 2020, Alejandro Giammattei, of the centre-right Vamos party, has been facing a vast social movement since mid-November 2020. While his popularity had already been badly affected by his handling of the COVID-19 crisis, the vote on the 2021 budget set the ball rolling. Widely criticised for its lack of transparency and the emphasis placed on financing the infrastructure in place for social spending, the budget was massively rejected by the population in the aftermath of the storms. Tensions arose within the executive, with the president and vice-president opposing each other on the way forward. The return to calm and unity within the executive couple in December with the opening of negotiations on the budget is only very fragile, and a resumption of political movement and tension cannot be ruled out. On the international scene, the migration issue will remain central while the Biden administration must decide on the safe third country agreement signed in 2019.

 

Last updated: March 2021

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