Guatemala Imports (G&S, ann. var. %)

GDP growth records slowest increase since Q4 2020 in Q3

GDP growth waned to 3.8% year on year in the third quarter from 4.1% in Q2. Q3’s reading marked the slowest growth since Q4 2020.

The deceleration was driven by weaker growth in private consumption, fixed investment and exports. Household spending growth moderated to 3.9% year on year in Q3, compared to a 5.5% expansion in Q2. Remittances growth nearly halved compared to the same period in 2021, which, along with the highest average inflation rate since 2009, weighed on household budgets. Although consumer credit growth accelerated in Q3, it failed to fully offset the drop in cash inflows from abroad. Moreover, fixed investment growth moderated to 2.2% in Q3, from 3.0% in the previous quarter. Meanwhile, public spending registered an 8.7% increase in Q3 (Q2: +2.1% yoy). The acceleration came predominantly on the back of higher real wages in the public sector.

On the external front, exports of goods and services increased 7.1% annually in the third quarter, which was below the second quarter’s 12.6% expansion. This likely reflected softer demand for Guatemalan exports against a deteriorating global economy. In addition, imports of goods and services growth waned to 4.7% in Q3 (Q2: +5.1% yoy), which was likely depressed by weakening domestic demand.

Turning to the fourth quarter, annual GDP growth likely decelerated further. Although the monthly index of economic activity inched up in October from Q3’s average, conditions across the economy remained precarious. Inflation through December remained at the highest rate since 2008, which should have eroded consumer purchasing power further. In addition, financing conditions tightened in November following the Central Bank’s whopping 75 basis point rate hike, increasing the burden on household budgets. Similarly, worsening conditions in key partner economies brought remittance growth to the lowest quarterly rate since the onset of the Covid-19 pandemic in Q2 2020.

Looking ahead, economic growth this year should wane further from 2022’s projection. A looming recession in the U.S., above-target inflation and uncertainty around the June 2023 general election pose major risks to the outlook.

Analysts at the EIU said:

“[We] expect Guatemala’s GDP growth to decelerate to 2.4% in 2023 from an estimated 3.2% in 2022. […] Under our baseline forecast, workers’ remittances from abroad will make a significant contribution to household demand. However, growth in remittances will decelerate and unemployment will rise, resulting in a slowdown in private consumption in 2023. Government consumption will also soften in 2023, as slower economic activity causes tax revenue to decline.”