2013-01-15 13:23:17 - Central America Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

Central America as a region will remain heavily dependent on the performance of developed-state economies, particularly the US, which remains a major source for remittance flows and demand for exports.

Drug-related violence and rising 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.

The region´s economic trajectory remains highly divergent. Panama is set to experience one of the fastest real GDP growth rates in the world over the next few years, whereas El Salvador and Guatemala will struggle.

Major Forecast Changes

We have revised up our 2012 real GDP forecast for Nicaragua, from 3.6% to 3.9%, given strong H112. In 2013,

 

 

we maintain our forecast for 3.9% real GDP growth. Indeed, despite weaker private consumption and a modest slowdown in investment, with stronger exports and more modest import growth, real GDP growth should remain at a relatively buoyant 3.9% in 2013 Due to slowing import growth and a strong performance from the services sector, we have revised our current account deficit forecast for Costa Rica to 6.2% of GDP in 2012 and 2013, from 6.3% and 7.3% respectively.

Panama´s strong H112 growth has encouraged us to revise up our 2012 real GDP forecast from an already robust 9.1% to 9.8%. That said, with the pace of the country´s expansion in key transport and commercial sectors set to ease in coming quarters, we maintain our view that the Panamanian economy will slow in 2013, in line with our real GDP growth forecast of 8.0%.

Key Risks To Outlook

Upside Risk: The performance of the US economy, and particularly US demand for regional exports, remains the biggest upside risk to our growth forecasts. We currently forecast US real GDP growth of 2.0% in 2012 and 2.1% in 2013, but if growth is significantly stronger, we would be likely to see Central American economies perform better than we currently anticipate.

Downside Risk: If eurozone sovereign woes drag the global economy into recession, this will clearly have a detrimental impact on Central American growth rates.

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