Guatemala: Economic momentum weakens markedly in Q1
July 17, 2020
Economic growth eased markedly in the three months ending in March, with GDP expanding a meager 0.7% year-on-year in the first quarter. The print, which was down notably from the prior quarter’s robust 3.9% expansion, was reflective of softer domestic demand amid restrictive measures to curb the spread of Covid-19 in the tail end of the quarter, as well as falling external demand.
Growth in domestic demand eased to 2.1% in the quarter, from 4.7% in the prior period. This came on the back of significantly softer household consumption growth, which was weighed on by restrictive measures (Q1: +1.9% year-on-year; Q4: +4.3% yoy). Government expenditure grew 3.3% in Q1, down from the previous quarter’s 3.9% expansion. Furthermore, the uncertain outlook and the imposed restrictions dragged on the private sector and business decisions: Fixed investment fell 3.8%, swinging from the fourth quarter’s 7.1% increase.
Meanwhile, net exports remained a drag on the economy, albeit to a lesser degree due to a notable easing of import growth on the back of weakened domestic demand. Imports of goods and services rose 3.5% over a year ago, down from the 6.7% rise recorded in the fourth quarter of last year. Exports, meanwhile, contracted 1.0% (Q4: +3.3% yoy) due to foreign lockdowns leading to a drop in demand and weakened trade flows.
Looking ahead, the economy is expected to shrink this year amid the economic fallout from the Covid-19 pandemic, which will weigh heavily on domestic and external demand. Moreover, a recession in the U.S. will hit remittance inflows, a key source of income for Guatemalan families.
Author: Jan Lammersen, Economist