El Salvador Economic Outlook
After losing speed in Q3, annual growth appeared to accelerate in Q4 on the back of improvements in all sectors of the economy except industrial production and housing. Turning to Q1, early signs are mixed. On the positive side, annual remittance growth accelerated significantly in January, boding well for private consumption. That said, still-elevated inflation hit real incomes in January–February, while annual exports growth continued to contract sharply in January. In other news, at a February Article IV IMF staff visit, the Fund suggested that a lending agreement is unlikely in the absence of key policy changes, boding poorly for the country’s access to global capital markets. The country’s use of Bitcoin, the recent approval of a costly pension reform and the loosening of reserve requirements for banks are key vulnerabilities, according to the Fund.
El Salvador Inflation
Inflation moderated to 6.8% in February (January: 7.0%). Dollarization, tighter domestic financial conditions, lower domestic demand growth and a decline in global commodity prices will keep a lid on prices this year. Key factors to watch include oil and food price dynamics.