Investment in Guatemala

Guatemala - Investment

Economy returns to growth in the fourth quarter of 2020

The economy emerged from recession in the fourth quarter of last year as GDP grew 3.0% year-on-year (Q3: - 1.4% yoy), which marked the best result since the same quarter a year prior. Looking at the year as a whole, the economy suffered its first annual contraction in over three decades due to the impact of Covid-19 and associated restrictions. That said, it was relatively mild, with output falling 1.5% over the prior year (2019: +3.9%).

The fourth quarter’s reading mainly reflected rekindled domestic demand amid a surge in public consumption, which swung to a 9.5% year-on-year expansion from a 0.8% drop in the prior quarter. In addition, private consumption rose 2.7% in the quarter, contrasting the 1.0% fall in Q3. Household spending was in part buoyed by surging growth in remittance inflows amid a tightening of labor market conditions in the United States. In December, remittances grew at the quickest pace in xx years. Meanwhile, fixed investment expanded 0.7% in annual terms in the fourth quarter, swinging from the third quarter’s 7.3% contraction and marking the first increase in a year.

On the external front, the contribution from net exports softened but remained supportive in the final quarter. Exports of goods and services rose 6.5%, in contrast to the 3.7% fall recorded in Q3. Imports of goods and services, meanwhile, expanded 2.3% in the quarter (Q3: -8.0% yoy), further highlighting recovering domestic demand.

Turning to 2021, the economy is forecast to return to growth in the year as a whole amid the rollout of vaccination programs globally, which should boost domestic and foreign demand as restrictive measures are gradually eased. However, downside risks remain as uncertainty lingers over the course of the pandemic, vaccine availability and the strength of the global recovery.

FocusEconomics Consensus Forecast panelists expect the economy to grow 3.4% in 2021, which is unchanged from last month’s projection. For 2022, our panelists expect the economy to grow 3.5%.