Central America Economic Forecast

Economic Snapshot for Central America

August 7, 2019

A recovery in Puerto Rico and a likely uptick in Panama will drive an acceleration in regional growth this year. That said, the rest of the region is seen stable or slowing as softer U.S. growth dampens remittances, exports and tourism. The recession in Nicaragua, exposure to natural disasters and uncertainty over the future of the TPS program in the U.S. are risks to the outlook.  

Central America Monetary & Financial Sector News

Regional inflation dropped to 8.2% in June, the lowest reading since February, partly reflecting reduced energy price pressures. Inflation fell notably in Brazil also on a positive base effect from last year’s truckers strike, while Argentina saw the first drop in inflation this year as the ultra-tight monetary stance bears fruit. Regional inflation is seen falling by year-end.    

The Central Banks of the Dominican Republic and Costa Rica both slashed their policy rates again in July. Low inflation and waning economic momentum created room for monetary easing. Looking ahead, the Fed’s rate cut in late July should provide scope for further unwinding if needed to support growth, and the regional average interest rate is forecast to end 2019 below its 2018 level.  

Regional currencies had mixed performances in H1; the colón and quetzal gained ground, while the Dominican peso gradually depreciated. Most currencies are projected to lose value by year-end, due to instability in countries like Nicaragua, weak external positions, and as concerns over global growth weigh on investor appetite for emerging-market assets.

 


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