Lewes, DE -- (ReleaseWire) -- 03/28/2014 -- The region’s economic trajectory remains divergent. Despite our expectations for slower real GDP growth in Panama in the next several years, it will remain the regional outperformer. On the other hand, we have a more mixed outlook for growth in the ‘northern triangle’ countries, with Guatemala likely to fare better than Honduras and El Salvador.
Central American will remain heavily dependent on the performance of the US economy, which remains a major source for remittance flows, and a destination for goods exports.
Drug-related violence and high levels of insecurity will remain the major concerns for most of the region’s electorate, although such concerns will be particularly elevated among the ‘northern triangle’ states of Guatemala, El Salvador and Honduras.
Major Forecast Changes -
Following the release of Q313 GDP data, we have revised up our 2014 real GDP growth forecast for Nicaragua to 5.1%, from 4.2% previously, based on our view for a continued strengthening of the country’s export performance. Indeed, we believe that economic growth will be driven by strengthening US demand for manufactured exports, and a modest uptick in coffee production following the recent renovation and rehabilitation of several major farms. While we have downgraded our GDP forecasts for Honduras after incorporating the latest data provided by the central bank, we expect that growth will pick up slightly in 2014, to 2.8%, compared to our estimate of 2.2% in 2013. The improvement will be based on a better performance in the export sector and greater confidence in the country as an investment destination as political risk subsides following the presidential election.
Key Risk to Outlook -
Downside Risk: We note downside risks to our 2014 real GDP growth forecast of 7.1% for Panama, in light of significant delays in the Panama Canal expansion project in recent weeks. Should work continue to progress slowly in the coming months, we could be encouraged to revise down our real GDP growth forecast for this year.
Downside Risk: Should Nicaragua’s export performance remain poor, the central bank may consider modestly accelerating the rate of the córdoba’s depreciation in order to bolster economic competitiveness. Indeed, given that the córdoba has appreciated in real effective exchange rate terms in recent years, a significantly weaker exchange rate could provide a boost to Nicaragua’s export sector, particularly its burgeoning textile manufacturing industry.
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