SAN SALVADOR – The world economic scenario does not look rosy in 2023: the World Bank has gone down from 3% to 1.7% on forecast of global economic growth, a fact that could “push the world economy into recession”.
With this perception, what can be expected for the countries of the Northern Triangle of Central America, whose inflation (disorderly increase in most goods and services) does not stop growing? Are you prepared for an adverse economic scenario?
According to economist Rafael Lemus, the answer lies in the way in which the economies of Guatemala, Honduras and El Salvador behaved after the blow of the COVID-19 pandemic.
“El Salvador and Honduras were the most affected countries with negative growth rates between 8 and 9%. The least hit was Guatemala, with a rate even lower than 2%, ”he told the voice of america.
“The recession affects several variables, one is that interest rates are rising and that creates a more complicated climate for investment and an increase in the cost of debt. Also, since they are economies stuck and so dependent on the United States, it would affect remittances and the demand for exports,” added Lemus.
But Ricardo Castaneda, a senior economist at the Central American Institute for Fiscal Studies (ICEFI) believes that unless the United States enters a recession, the Northern Triangle countries can only expect an economic slowdown. “In other words, they would grow economically, but at a lower rate.”
“The economic recession is expected more in developed countries. In any case, if it materializes, there may be difficulties for the three countries due to remittances, exports and foreign investment,” he told the Voice of America.
Guatemala received 18,000 million dollars in remittances in 2022. Honduras, 8,600 million dollars and El Salvador, above 7,000 million dollars, according to official data from the central banks of these countries.
The economic situation of the Northern Triangle
Despite the fact that El Salvador, Guatemala and Honduras are countries with affinities due to their geographical proximity, the economic area of the three has marked differences.
Guatemala is called by the World Bank the “largest economy in Central America”, with a public debt around 36% of the Gross Domestic Product and a budget deficit “historically among the lowest and most stable in the world”.
But this scenario has not translated into a significant reduction in poverty, according to the multilateral organization, “the low income of the central government limits the capacity for public investment and restricts both the quality and coverage of basic public services.”
A different scenario occurs in El Salvador, the smallest country in Central America, whose fiscal sustainability is becoming increasingly difficult. El Salvador has already exceeded 86% of its GDP in public debt.
Likewise, according to data from the Economic Commission for Latin America and the Caribbean (ECLAC), El Salvador is at the bottom of the Northern Triangle countries with the lowest inflow of foreign direct investment. In 2021, Guatemala captured 3,472 million dollars of said investment; Honduras 876 million dollars and El Salvador 313 million.
For its part, the public debt of Honduras around the GDP is around 58%. According to the World Bank, Honduras remains one of the poorest and most unequal countries in the Western Hemisphere.
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