Economic Outline

Economic Indicators

Guatemala has demonstrated resilience in the face of numerous crises. The economy has remained robust, benefiting from a steadfast adherence to prudent policies characterized by low fiscal deficits and debt-to-GDP ratios, along with ample international reserves. Additionally, substantial remittance inflows have further bolstered economic stability. Following a notable recovery in 2021, Guatemala's economic momentum has tapered off, with GDP growth halving to a steady 4.1% in 2022. Guatemala's robust growth trajectory persisted in 2023, with real GDP estimated to have expanded by 3.4%, thanks to credit expansion and higher remittances directed towards the private sector. The IMF anticipates that in 2024, GDP growth will revert to its potential rate of 3.5%, propelled by sustained consumption fueled by strong remittances and credit expansion.

In 2023, the central government's fiscal deficit decreased to 1.3% of GDP, down from 1.7% in 2022, as reported by Fitch Ratings. Despite lower commodity prices leading to reduced import taxes, fiscal revenues remained stable at 12.6% of GDP, indicating sustained progress in administrative enhancements. Expenditures declined to 13.9% of GDP, compared to 14.4% in 2022, largely due to reduced spending on goods, services, and transfers following the presidential elections. Moving forward to 2024, the government will continue operating under the 2023 budget as the 2024 budget, approved by Congress, was suspended due to procedural irregularities. With the current budget constraints in mind, Fitch projects a deficit of 1% of GDP for 2024. Unlike previous years, Guatemala heavily leaned on external debt to address its financing requirements in 2023. This reliance stemmed from legislative gridlock, which caused delays in multilateral disbursements, alongside an increase in local-currency yields due to tightening domestic monetary policies. Public debt declined to 28.3% of GDP in 2023 and should also remain relatively stable in 2024 (27.9%) and 2025 (28% - IMF). In contrast to many regional central banks, BanGuat took a gradual approach in transitioning from accommodative policies, aiming to bring the inflation rate to a neutral level of 5.0% by April 2023, where it has since remained. This unique stance reflects the significant impact of imported goods on inflationary pressures, which have subsided. After reaching a peak of 9.9% in February 2023, inflation reverted to its target range of 4%+/-1pp, closing the year at 4.2%, primarily driven by declines in fuel and food prices (Fitch Ratings).

According to the latest data available by the World Bank, the unemployment rate in Guatemala reached an estimated 3% in 2022. However, the country's informal sector grew 60% according to Guatemala's Labor and Social Security Minister. Furthermore, more than half of the population live below the poverty line. The country also has one of the highest rates of malnutrition in the world, one quarter of its adults are illiterate, there is a high level of income inequality, and there is a high rate of organised crime and drug trafficking-related violence.

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