Central America Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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Central America Country Risk Report
Product Price
$1,195.00

External Tailwinds Supporting Regional Underperformers

Core View

Central American outperformers Costa Rica and Panama are facing a more challenging road ahead in the coming years. As real GDP growth slows in Panama on the back of the end of canal construction, establishing fiscal discipline and ensuring adequate employment will be crucial. Should the country fail to rein in spending in an environment of lower growth, this would likely cool investor enthusiasm toward the country. Similarly, Costa Rica is also facing a challenging fiscal outlook - a situation which is only exacerbated by the fragmented political environment.

In contrast, our economic outlook for most of Central America's underperformers is brightening. Guatemala, Honduras and El Salvador will benefit from stronger US demand for their manufactured goods, rising remittance inflows and relatively subdued oil prices in the quarters ahead. That said, significant security risks will temper foreign direct investment into these countries over the next five years, and the risk of prolonged social unrest in the wake of recent corruption scandals has risen. Over the next several years, the entry into force of the Trans-Pacific Partnership will also pose increased headwinds to these countries' manufacturing sectors. Nicaragua's macroeconomic position is also especially vulnerable given its strong ties to Venezuela. Our core view is for a moderate slowdown in growth in the coming years due to an end to the Tariff Preference Level programme and our view that Venezuela will modestly reduce assistance to Nicaragua. However, if Venezuela were to suddenly cut off aid under the ALBA-TCP programme, this would see a sharp downturn in Nicaraguan growth and rising pressure on the country's macroeconomic buffers.

Major Forecast Changes

  • We have downgraded our end-2016 interest rate forecast for Guatemala to 3.50% from 3.75% previously. The Banco de Guatemala has held the benchmark rate at 3.00% in the year-to-date and policymakers seem cautious to hike prematurely so as not to stymie economic activity, despite an uptick in headline inflation.

Key Risks

  • Should US growth underperform our expectations, coming in below our 1.9% forecast for 2016, this would translate into relatively weaker US demand for Central American manufactured goods. In turn, this would dampen economic activity throughout the sub-region.

  • A significant deterioration in the security environment of one of the countries, either due to rising social unrest following anti-corruption demonstrations or a spike in cartel- or gang-related violence, could temper investment into that economy, weighing on economic activity.

BMI Indices - Brief Methodology
5
BMI Index League Tables
13
Executive Summary
15
Core Views
15
Major Forecast Changes
15
Key Risks
15
Economic Outlook - Regional
17
SWOT Analysis
17
Political Outlook - Regional
19
SWOT Analysis
19
Long-Term Political Outlook
20
Central America Facing Continued Challenges To Political Stability
20
Chapter 1
23
Monetary Policy
23
Deflationary Conditions Presage Further Loose Monetary Policy
23
Chapter 1
25
Domestic Politics
25
Legislative Directory Election Will Further Undermine Fiscal Reform
25
TABLE: LEGISLATIVE DIRECTORY, 2016/17
25
Chapter 2
27
Economic Growth Outlook
27
Security Environment Will Weigh On Economic Prospects
27
Chapter 2
29
Domestic Politics
29
Fragmentation Of Gangs Will Keep Violence High
29
Chapter 3
31
Monetary Policy
31
Loose Monetary Policy Will Persist Through 2016
31
Chapter 3
33
Domestic Politics
33
Territorial Dispute Will Undermine Economic Cooperation
33
Chapter 4
35
Monetary Policy
35
More Cuts Ahead Before Tightening Begins In 2017
35
Chapter 4
37
Domestic Politics
37
Police Reform Will Not Stem Corruption
37
Chapter 5
39
Fiscal Policy And Public Debt Outlook
39
Public Spending Will Maintain Robust Growth
39
Chapter 5
41
Domestic Politics
41
Public Unrest Will Rise Amid Economic And Security Challenges
41
Chapter 6
43
Economic Growth Outlook
43
Investment Will Support Steady Growth
43
Chapter 6
45
Domestic Politics
45
Post-Canal Expansion Challenges To Shape Policy
45
TABLE: KEY ECONOMIC INDICATORS
45
Chapter 7: BMI Global Macro Outlook
49
Global Macro Outlook
49
Summer Of Risk
49
TABLE: GLOBAL ASSUMPTIONS
49
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
50
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
51
TABLE: COSTA RICA - MACROECONOMIC DATA & FORECASTS
53
TABLE: EL SALVADOR - MACROECONOMIC DATA & FORECASTS
53
TABLE: GUATEMALA - MACROECONOMIC DATA & FORECASTS
53
TABLE: HONDURAS - MACROECONOMIC DATA & FORECASTS
53
TABLE: NICARAGUA - MACROECONOMIC DATA & FORECASTS
53
TABLE: PANAMA - MACROECONOMIC DATA & FORECASTS
53

Assess your risk exposure in Panama, Guatemala, Nicaragua, El Salvador, Costa Rica, Honduras with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Panama, Guatemala, Nicaragua, El Salvador, Costa Rica, Honduras with confidence.

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