Guatemala is a country that maintains a conservative economic performance and during the first six months of Government, the main indicators that are the statistical models to have an idea of how production, distribution, exchange and consumption are going show a stable position, despite an international context of uncertainty.
The Guatemalan economic system is mixed and open; that is to say, there is no major intervention by the State in terms of regulation and the private sector can develop its activities without direct interference, which has been demonstrated and respected during this first period of the administration of President Bernardo Arévalo and the members of his government cabinet.
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Since 2021, national production has been in a recovery cycle, which also affects the microeconomy (households, individuals and small businesses), but the process has been interrupted by permanent inflation, although the central bank insists that the figure remains within the target; levels of foreign direct investment inflow that do not take off to the levels necessary to impact development; and open unemployment close to 3%, but thanks to levels of underemployment reflected in more than 70% of the economically active population (EAP) employed in the informal sector.
Consumer prices
One of the most sensitive issues from a social and political point of view is the cost of living, better known as inflation, which is the general rise in prices in the economy.
The current government, like the previous ones, knows and understands how to contain this social-economic pressure that can generate ungovernability and for that reason, they seek any mechanism of attention or temporary solution to try to mitigate it with the application of temporary subsidies or grants.
So far this year, and according to information from the National Institute of Statistics (INE), the year-on-year inflation has behaved as follows: January 3.82%; February 3.3%; March 3.24%; April 3.36%; May 3.76% and June 3.62%, an indicator that would be 4% plus/minus 1% established as a target by the Monetary Board (JM).
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However, in the street economy, housewives and heads of households see a different reality, and perceive an accelerated increase in prices, especially of products that make up the basic food basket.
Especially during June and July, there was an unusual increase in the price of many vegetables and fruits, which might be associated with the erratic behavior of the weather, which has varied from extreme drought to excessive rainfall.
“There might be inflationary pressures arising from the increase in the price of products mainly from agriculture, due to the delay of winter and then, due to the damage to crops caused by heavy rains, as well as damage to the country’s infrastructure.”
Sergio Recinos, former president of Banguat
Added to this is the severe damage to the road system and the constant postponement of the rehabilitation of the Palín-Escuintla Highway, which is a key section for the country’s logistics network.
Regarding the cost of the Expanded Urban Basket (CAU), it increased by Q50.26 in the first half of the year; the so-called Expanded Rural Basket (CAR), Q32.62; the Urban Basic Food Basket (CBA) per capita increased by Q20.67 and the Rural Basic Food Basket (CBAR) per capita by Q16.49, according to a new calculation methodology approved by the INE board of directors during the previous administration.
Regardless of the above, Sergio Recinos, former president of the Bank of Guatemala (Banguat), anticipated that there might be inflationary pressures derived from the increase in the price of products mainly from agriculture, due to the delay of winter and then, due to the damage to crops caused by heavy rains, as well as damage to the country’s infrastructure.
In all cases, the speed of response to road problems has been poor, while, with regard to inflation, the only thing that has remained is a high leading interest rate (5%), despite the fact that the origin of the general rise in prices is not of monetary origin.
Low levels of FDI
Regarding productive capital flows from abroad, during the first quarter (last report) an inflow of US$408.2 million was recorded, which represents a slight increase of 1.1% and is very similar to the US$403.7 million of foreign direct investment (FDI) in the same period last year.
Vehicle trade, repair and financial activities have attracted the most resources, amounting to US$333.8 million, representing 82% of the total, which is the only updated data. By country of origin, the funds came from the United States, Mexico, Panama, Luxembourg and Honduras.
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The economic activity confidence index, which measures the perception of economic agents or decision makers regarding the future business climate, is beginning to reflect this situation in some way, and the indicator as of last June stood at 70.64 points, following starting the year with 57.80 points when the president took office.
In response, on June 13, the government presented its National Strategy for Attracting Foreign Direct Investment, with a portfolio of 54 projects to attract some US$2,707 million over four years. The sectors involved are as diverse as manufacturing, agribusiness, trade, infrastructure and services.
But according to Guillermo Díaz, coordinator of the Institute for Research in Socio-Humanistic Sciences at Rafael Landívar University (URL), the Guatemalan government must guarantee compliance with its international commitments, so that companies can evaluate the opportunity to invest, but also maintain compliance with laws or regulations and legal certainty, with the understanding that the rules will not change at any time, and that is another pending task.
Widespread underemployment
According to the Guatemalan Social Security Institute (IGSS), with figures available as of April 2024, there are 1,626,472 people registered in that institution, which is equivalent to the same number of people with a formal job. The figure represents a 1% growth compared to the end of 2023, when there were 1,554,663 contributors.
The indicator shows recovery, following in 2020, due to the effects of the pandemic, it reached the lowest point of contributors, with 1,289,882, thus showing a recovery of 26%.
By productive activities, the IGSS reports that commerce has 254,264 members; manufacturing industries, 237,321; and real estate, business and rental activities, 205,486. Meanwhile, public administration, defense and social security plans, 360,334, which are the most significant sectors in terms of the number of beneficiaries.
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However, according to the latest Employment and Income Survey —2021— the working-age population exceeded 11.7 million and the Economically Active Population (EAP) was 7.4 million Guatemalans.
The report indicates that “the open unemployment rate was 5.7 for the metropolitan urban area, while the indicator for the population residing in the rest of the urban area was 2.2 and in the national rural area it was 1.1; for the measurement of visible underemployment, the rate was 8.7 for the metropolitan urban area, 7.5 for the rest of the urban area and for the national rural area it was 8.1.”
It also placed 8.1% of the EAP as →the population in a situation of visible underemployment, which are people who involuntarily work less than the normal working day and who wish to work more hours.
As for the informal economic sector, in 2021 it accounted for 70.8% of people of working age (15 years or older).
The figure includes all employed persons in the following categories: employers, employees and workers in companies with fewer than six people; self-employed or freelance workers, excluding professionals and technicians; all unpaid family members; and persons employed in domestic service.
Recinos believes that attention should be paid to the issue of productive employment of the population, especially when there is another important risk that might aggravate the situation, namely a decrease in exports, combined with problems associated with ports and road disruptions.
Each of these elements impacts employment, as well as the income of the majority of the population.
IMF and its vision of the country
One of the conclusions of the International Monetary Fund (IMF) Chapter IV review, which is an annual examination of the national economy from abroad, highlights that the Guatemalan economy “continues to show remarkable stability and solidity thanks to a long history of prudent monetary and fiscal policy, such as target inflation, large international reserves, contained fiscal deficits and a low public debt/GDP that continues to fall.”
The technical report was presented last May and is a reference document for country risk rating agencies, as well as for potential investors, which contains the first impressions of the administration of Governor Arévalo.
“The Guatemalan economy “continues to show remarkable stability and solidity thanks to a long history of prudent monetary and fiscal policy, such as inflation on target, large international reserves, contained fiscal deficits and a low public debt/GDP that continues to fall.”
IMF Chapter IV Report
The international organization makes clear preliminary recommendations and calls on the government administration to advance a structural agenda of reforms aimed at improving infrastructure, investing in human capital and strengthening governance to support the country’s productive sectors and ensure greater sustained and inclusive growth.
CIG: More than 5% growth is needed
Regarding the economic evolution and the main indicators in the first six months, Raúl Bouscayrol, president of the Chamber of Industry of Guatemala (CIG) offered a reading from that sector, explaining that, according to the Bank of Guatemala, during the first semester the economy behaved in accordance with expectations, but to close the year with the forecast economic growth, actions must be taken to allow it.
“We have stated that maintaining infrastructure is essential, and that model changes must be promoted to increase investment in public works,” he noted.
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He added that the economic impact that companies are bearing due to poor infrastructure is significant and if this is not addressed immediately, it will have consequences in the short, medium and long term with a reduction in the volume of foreign trade, increased costs for companies, less competitiveness and further price increases in the basic basket.
“In the medium and long term, national and foreign investment may be reduced by this loss of competitiveness and investors will look to other countries in the region for their investments.”
He concluded that the country needs to grow by more than 5% to generate more jobs, and that “losing investments is something we cannot afford.”
Cacif: Confidence has been restored
When asked regarding the situation, Carmen María Torrebiarte, president of the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (CACIF), said that the first half of the year once once more demonstrated that the country’s economy is very resilient.
The vision of the organized private sector is that confidence in economic activity has been restored. And for growth to exceed 3.5% annually, more investment is needed in public infrastructure, which is deteriorating and making us lose competitiveness, in addition to investing in education, health and nutrition.
“I am optimistic and believe that as long as all sectors continue to work together, we will generate greater development for Guatemala,” he concluded.
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