El Salvador Economic Outlook
After slowing in year-on-year terms in Q1, economic growth likely accelerated in Q2. Monthly economic activity growth averaged 4.2% in the quarter, up from 2.5% in Q1. The improvement was partly driven by a rebound in industrial production, buttressed by softer cost pressures during the period. Additionally, construction output gathered steam. Meanwhile, retail activity ticked down in the quarter, but overall private spending was likely healthy, supported by falling inflation and soaring remittances. In other news, the country signed a seven-year partnership with Google in August to create a technology hub for cloud services. The arrangement aims to enhance digital transformation and the healthcare and education systems. In politics, President Bukele led Augusts polls for February’s 2024 presidential election despite debate regarding his constitutional eligibility to run for office again.
El Salvador Inflation
Inflation fell to a two-year low in July, coming in at 3.3%, down from June’s 3.8%. The decline was driven by softer price pressures for food, and housing and utilities. Inflation will average lower than last year thanks to dollarization and weakening domestic demand. However, spikes in commodity prices stemming from the El Niño weather pattern pose an upside risk.