Guatemala

Growth dependent on US activity

In 2023, economic activity remained relatively dynamic, despite a slight slowdown. This can be explained mainly by slower growth in exports (clothing, coffee, bananas, palm oil, mineral water, sugar, biscuits). While expatriate remittances (20% of GDP in 2022, 30% of household income) have followed the same trend, their flows have remained solid and are supported by the resilience of US economic growth, thereby benefiting private consumption (88% of GDP in 2022). Public consumption spending has also supported growth in the run-up to the presidential and legislative elections, and against a backdrop of more robust activity since 2022. Investment (17% of GDP in 2022) has risen, driven largely by construction, both public (hospitals, education centres) and private (warehouses, offices, shopping centres). In 2024, growth is likely to be mitigated by unfavourable external conditions. A slowdown in the North American economy would have a negative impact on exports (18 % of GDP) and remittances. Nevertheless, while household purchasing power is likely to suffer from the weakening of the latter, it will benefit from lower inflation. After peaking at 9.9% in February 2023, inflation returned to its target of 3-5% in June of the same year. If this trend continues, Banco de Guatemala, which has kept its main interest rate at 5% since April 2023, should be able to ease its monetary policy. However, this forecast remains subject to the trend in oil prices, which are still high, and to the uncertainty linked to the impact of the El Niño phenomenon on agricultural production. The inauguration of the new government in January 2024, which has made the fight against corruption its main objective, could boost investor confidence, thereby encouraging private investment in 2024, when the political instability of the transition period evaporates. However, growing political uncertainty and an increasingly tense social climate are raising doubts as to whether the new government will take office, thus clouding the outlook for the business climate.

Comfortable fiscal and external position

In 2023, the budget deficit has widened slightly, due to major expenditure on the presidential and legislative elections in the middle of the year. This slight deficit will remain in 2024. The new administration hopes to increase revenues, notably by increasing the tax base, but the unpopularity of such measures with legislators and the influential business community may slow their implementation. On the expenditure side, the government is making social spending, mainly education, the linchpin of the 2024 budget. Public debt (50 % of which is external) is expected to remain on a sustainable downward path, although debt servicing costs will increase (estimated at 3% of GDP by 2024).

The current account surplus widened in 2023. Remittances have maintained the large surplus on the transfers account (20.3% of GDP), while the continued recovery in tourism has reduced the services deficit (1.8% of GDP). The trade deficit (15% of GDP) has narrowed as a result of the fall in the import bill, particularly for hydrocarbons (17% of total imports in 2022). In 2024, the current account could record a smaller surplus, in the wake of the deterioration in economic conditions in the US, which accounts for around 32% of the country's exports and almost all expatriate remittances (97% in 2021). Imports of hydrocarbons will remain stable, due to oil prices remaining high in 2024.

Turbulent elections and an increasingly fragile political and social context

On 20 August 2023, the left-wing candidate Bernardo Arévalo (Semilla party) won the second round of the presidential election after garnering 60% of the vote. This unexpected victory was strongly contested by the opposition and the political and economic establishment, which did not want to see the new government take office on 14 January 2024. However, Arévalo was finally sworn in as Guatemala's president on 15 January.  More than three weeks after the election, public prosecutors, led by the controversial Attorney General Maria Consuelo Porras, seized the ballot boxes, with the president-elect denouncing an "ongoing coup". On 2 November, 2023, the electoral authorities disqualified the Semilla party on the basis of the alleged falsification of signatures at the time of its creation, which would pave the way for the invalidation of its legal status and the election of its members. The US and the EU have contested the legitimacy of the current legal proceedings. Violent demonstrations in support of the President-elect, including the blocking of major roads, have emerged across the country, at a time when the country has been experiencing major social unrest since the Covid-19 pandemic. The Semilla party occupies a minority position in Congress (24 seats out of 160), faced with a strong majority opposition (Vamos, UNE). The government will therefore be compelled to form alliances, which will be fragile given the fragmentation and influence games, with other centre and left-wing parties in order to govern. As a result, progress on the legislative agenda of the Arévalo government could be hampered, thereby compromising the major advances promised in the fight against corruption, which was the central objective of his presidential campaign. In terms of foreign policy, Guatemala will maintain its close relations with the US, its leading trading partner (32% of imports and exports and the main source of expatriate remittances). The US will continue to call for anti-corruption measures to be put in place and for migration flows to be controlled.

Last updated: October 2023