Central America Economic Forecast

Economic Snapshot for Central America

October 9, 2019

Growth is seen fairly stable next year, with slowdowns in the Dominican Republic and Puerto Rico offset by faster growth in Costa Rica and Panama. Political uncertainty in Haiti and Nicaragua, exposure to natural disasters and uncertainty over the future of the TPS program in the U.S.—the termination of which could hit remittances—are downside risks.

Central America Monetary & Financial Sector News

Regional inflation dipped to 2.0% in August from 2.3% in July, chiefly on lower price pressures in El Salvador, Guatemala, Honduras and Panama. Looking ahead, more accommodative monetary policies and broad currency weakening should push up regional inflation moving forward, although price pressures will still be mild. Fluctuating oil prices remain a key risk to the outlook.

Major regional currencies not tied to the dollar have lost ground over the last month amid elevated international uncertainty, and lower domestic interest rates in the cases of Costa Rica and the Dominican Republic. Going forward, most currencies should depreciate due to a mixture of persistent fiscal and current account deficits, political instability and looser monetary stances.

Costa Rica’s Central Bank cut rates in recent weeks on soft economic activity and downside risks to the inflation outlook. Looking ahead, under-control price pressures and likely further easing from the Federal Reserve could provide scope for more rate cuts by regional central banks.

 


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