This study highlights Guatemala’s macroeconomic prospects by exploring the country’s political outlook, GDP outlook, monetary policy outlook, fiscal outlook, as well as a newly formed Customs Union with Honduras.
The country is facing its second political crisis in two years owing to corruption relation charges against President Jimmy Morales and ensuing events. Corruption appears to be a key challenge to doing business in Guatemala, with the Guatemala securing the fourth lowest score in the Latin American and Caribbean region as per 2016 Corruption Perception Index scores.
The ongoing political crisis is anticipated to be a key restraint to gross domestic product (GDP) growth in 2017, with stagnant growth expected this year. Growth is expected to hover between 3.2% and 3.3% for the next four years. In regards to the country’s monetary policy outlook, following the holding of the key interest rate steady at 3% since October 2015, interest rate hikes could be pursued over the next few months owing to rising inflationary pressures, with inflation presently hovering extremely close to the central bank’s upper target of 5%. While the country’s public debt is modest, there is an urgent need to shore the government’s tax revenue, and the country could possibly see higher tax rates in the near future.
One hugely positive development for Guatemala has been the formation of a Customs Union with Honduras that went into force in June 2017. As a result of the Guatemala-Honduras Customs Union, companies operating in Guatemala can benefit from greater free trade access for goods trade, lesser cumbersome regulation, reduced customs wait times and so on.
Key Questions Answered:
· How has Guatemala landed itself in its second political crisis in two years?
· How has Guatemala’s historical GDP growth shaped up and what is the outlook for future growth?
· What is the structure of the economy and how will this structure evolve?
· What is the outlook for inflation and interest rates?
· How has government expenditure, revenues, and fiscal deficit evolved through the years, and what is the outlook for the same?
· What is the outlook for government infrastructure investments?
· How does Guatemala’s tax collection compare to regional counterparts?
· What are the present incentives and benefits realized under Guatemela-Honduras Customs Union?
· How is the Customs Union likely to evolve in the future?
· What are the near-term growth opportunities for companies operation or looking to invest in Guatemala?