Colorful city in Guatemala

Guatemala GDP Q1 2021

Guatemala: Economic growth reaches multi-year high in Q1

Economic growth firmed in the opening quarter of the year, with GDP expanding 4.8% year-on-year. The print, which was up from the fourth quarter’s 3.0% expansion, marked the best result since the third quarter of 2015 and came on the back of healthier demand dynamics at home.

Private consumption grew 5.8% year-on-year in Q1, up from the 2.7% expansion logged in the prior quarter, despite lingering Covid-19 restrictions at home. The acceleration partly reflected healthy growth in remittances as the labor market in the United States, where the majority of remittances originate from, tightened due to the easing of restrictive measures. Fixed investment, meanwhile, jumped 20.3% in annual terms in the first quarter. This was up markedly from the 0.7% expansion logged in the fourth quarter of last year and likely reflected more upbeat business expectations amid the gradual easing of global restrictions. On the other hand, government consumption contracted 1.4% in the quarter, swinging from the 9.5% increase recorded in Q4 and weighing on the headline reading.

On the external front, growth in exports of goods and services cooled to 3.9% from 6.5% in the fourth quarter. Imports of goods and services, on the other hand, grew at a stronger pace of 10.3% in the first quarter compared to 2.3% in the prior period. Consequently, net exports contributed negatively to the headline reading.

Looking ahead, household spending is expected to have gained further traction in the second quarter amid record-breaking growth in remittances. The gradual unwinding of restrictive measures at home and abroad should further fuel economic activity this year. Downside risks remain, however, amid lingering uncertainty over the course of the pandemic and vaccine availability.

Analysts at the EIU added:

“Guatemala is experiencing a solid V-shaped recovery, buoyed by record inflows of workers’ remittances from abroad. […] However, the recovery has so far been uneven, supported by private consumption (amid high inflows of remittances) on the demand side, and by the fast reopening of industry on the supply side. The services sector continues to lag, although we anticipate a firmer recovery in activity in the second half of 2021 and in 2022.”

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