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LatAm Countries: GDP growth (% YoY)
6 5 4 3 2 1 0 -1
ARG
BRA
CHI
COL
MEX
PAR
PER
URU
LATAM
MS
AP
MAY 15
FEB 15
Source: BBVA Research
2014, Guatemala policy interest rates dipped as low as 3.0 percent in early 2016, but are expected to climb back to 4.0 percent in 2017. Finally, the Guatemalan government’s deficit has been decreasing since 2010 and continued to decline from 4.8 percent in 2014 to 3.8 percent in 2015. Experts predict that it will fall under 1 percent in 2019, provided that the Guatema- lan government maintains a strict fiscal policy, cuts spending on government employee salaries, and raises its tax revenue base, which at 10.8 percent of GDP is close to the 12 percent target rate set by the 1996 UN-brokered peace accords.
EXPORT UNCERTAINTY
Thanks to their long-standing ties with the United States, Mex- ico and the countries of Central America are expected to under- go growth in exports. The increase in output, however, could be met with an increase in interest rates, which the IMF believes would happen faster and more sharply than anticipated, further reducing capital inflow. The United Nations notes that exports from the LAC region grew by 2.2 percent in 2014 and forecasts a growth in exports to 4.3 percent in 2016, although if China’s economic woes continue, these numbers may suffer.
In 2014, China’s reduced demand for commodities negatively affected the many Latin American economies, and if the Asian giant continues to restrict imports, then South America in particular could see an ongoing decline in both the price and quantity of exports. Although commodity prices dropped in 2014 due to weakened demand worldwide, they are expected to stabilize, with the IMF predicting only small price corrections in metals and crude oil.
Overall, however, projections for GDP growth foresee a posi- tive trend by 2016, with exports following that curve. According to Harvard University’s Center for International Development (CID), Mexico and Central America will lead the way, thanks
to economies that are diversifying away from commodities and toward more sophisticated manufacturing. Professor Ricardo Hausmann, director of the CID, sees a “tough road ahead [for exports] for commodity-driven economies.” The center notes that Latin American countries are increasingly dependent on the ability to produce goods that are both more diverse and
Like other Latin American countries, Guatemala is experi- encing weak commodity prices, particularly with regard to oil and food prices, but these are helping to curb inflation, which should stay in the low single digits. Year-end inflation for 2015 was projected at 2.7 percent. Growth in 2015 was driven by low- er oil prices and an increase in private consumption. It is, how- ever, expected that the exchange rate will increase in volatility but that the Guatemalan quetzal will remain stable. Similarly, interest rates are expected to remain stable, in a low-to-moder- ate range. Dropping from 5.0 percent in 2013 to 4.0 percent in
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