Central America Economic Forecast

Economic Snapshot for Central America

January 20, 2021

Regional growth is seen rising this year from last. A recovery in Puerto Rico and a likely acceleration in Panama should more than offset slower momentum in the rest of the region. Political uncertainty in Nicaragua, exposure to natural disasters and uncertainty over the future of the TPS program in the U.S. are downside risks to the outlook.

Central America Monetary & Financial Sector News

Regional inflation dipped to 2.2% in August from 2.3% in July according to preliminary data. More accommodative monetary policies and a broad weakening in currencies should push up regional inflation moving forward, although softer economic activity in many countries will limit the uptick. Fluctuating oil prices remain a key risk to the outlook.

The central banks of the Dominican Republic and Jamaica both cut their policy rates again in August, as part of efforts to support inflation and economic activity. Looking ahead, under-control price pressures and likely further easing from the Fed could provide scope for more rate cuts by regional central banks.

Major regional currencies not tied to the dollar have lost some ground over the last month against a backdrop of rising international uncertainty. Going forward, most currencies are likely to continue to depreciate due to a mixture of fragile external positions, political instability and lower domestic interest rates.

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