2012-10-14 15:56:29 - New Country Reports research report from Business Monitor International is now available from Fast Market Research

Core Views 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 concern 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, with Panama set to experience one of the fastest real GDP growth rates in the world over the next few years, whereas El Salvador and Honduras will struggle. Major Forecast Changes We have revised up our forecast for Honduras's real GDP growth from 3.4% to

4.0% in 2012. We believe the country's telecommunications, construction and retail sectors will bolster fairly robust economic activity, though we warn that the country's manufacturing and agricultural sectors remain vulnerable to external shocks. We have revised down our forecast for the Guatemalan quetzal, such that we are now projecting that it will average GTQ7.8000/ US$ in 2012. This reflects our view that a sharp fall in coffee prices will feed through to a weaker exchange rate. We have modestly revised up our forecast for Nicaragua's real GDP growth, from 3.3% to 3.6% in 2012 and from 2.8% to 3.5% in 2013. Investment is likely to moderate slightly from the substantial 18.8% expansion seen in 2011. That said, with a subsidiary of the China National Machinery Industry Corporation set to start construction of a 150,000-barrel-per-day refinery, as well as growing interest in Nicaragua's telecoms sector, we still believe foreign interest in the country will remain strong enough to ensure solid growth. 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, but if growth is significantly stronger, we would very likely see Central American economies perform better than we currently expect. Downside Risk: If eurozone sovereign woes drag the global economy into recession in 2012, this will clearly have a detrimental impact on Central American growth rates.


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