Guatemala: Economic growth cools in Q3
January 14, 2022
Economic growth cooled to 8.6% in the third quarter from 15.2% in the second quarter. The reading in part reflected a less favorable base effect.
The slowdown came partly on the back of cooling domestic demand. Household spending growth eased to 9.1% year-on-year in the third quarter from 15.3% in Q2, while public consumption rose 5.0% after skyrocketing 14.5% in the second quarter. Fixed investment continued to grow at a strong pace of 17.8% in the quarter, despite easing from the prior period’s stellar 27.6% expansion. This likely reflected upbeat demand and output expectations for the year ahead.
The external sector’s performance also weakened. Exports of goods and services grew 8.5% year-on-year in the period, down from the second quarter’s 23.7% expansion. Export growth therefore eased at a quicker pace than import growth, which cooled to 27.4% from 41.5% in the second quarter.
Economic growth is expected to slow this year compared to last year, partly due to a less supportive base effect. That said, the unwinding of restrictive measures at home and abroad bodes well for domestic and foreign demand, although the country’s relatively low vaccination rate and the emergence of new Covid-19 strains continue to pose a downside risk to the domestic economy. Furthermore, the government’s unwinding of fiscal relief measures will likely also put a brake on rapid economic growth.
Analysts at the EIU added:
“Guatemala's recovery in 2022 will be driven by record inflows of workers' remittances. This mainly reflects rapid growth in the U.S., and particularly the impact of U.S. government stimulus measures on remittances. Although we expect the ongoing recovery in the U.S. to continue boosting performance, there are still risks to Guatemala's medium-term recovery, as it remains unclear whether the domestic economy would be capable of sustaining rapid growth itself if the U.S. economy were to weaken, particularly given that stimulus is being withdrawn in Guatemala. […] A prolonged and significant deterioration in the public health situation could weaken consumer and business sentiment, although not as severely as in 2020, as the economy seems to have adapted to the likelihood of new waves of Covid-19.”
Author: Jan Lammersen, Economist