Country Report El Salvador January 2009

Outlook for 2009-10

• Politics are moving into the crucial pre-electoral stage, with elections that will determine the political and economic environment for the next five years, taking place in January and March.
• The Economist Intelligence Units baseline forecast is premised on an Arena victorythe March presidential contest pits Rodrigo Avila of the ruling Arena against the moderate Mauricio Funes of the leftist FMLN.
• Whichever candidate wins, policy implementation under the next government, which takes office in June 2009, will be complicated by its lack of a congressional majority.
• GDP growth will decelerate to 1.5% in 2009, reflecting a deteriorating external environment and the lagged impact on consumption of higher inflation. Assuming a mild US recovery, GDP will recover gradually to 2.1% in 2010.
• After falling to 5.5% at end-2008 from a peak of 9.9% in August 2008, we now expect that inflation will ease to 2.5% by end-2009 and 3% in 2010.
• After widening to 6.8% of GDP in 2008, the current-account deficit will narrow in 2009 and in 2010. We expect that it will be largely financed by long-term debt inflows as FDI inflows will weaken substantially.

Monthly review

• The outcome of the January 18th election for legislative seats and the authorities in 262 municipalities was about to set the tone for the remainder of the presidential campaign, which ends with an election on March 15th.
• Homicide rates fell by 9.2% in 2008, according to preliminary data from the national civilian police which were welcomed by the government which is battling for re-election. The high crime rate remains a major popular concern.
• The government requested a US$800m stand-by facility from the IMF in January, reflecting the narrow range of available policy options to stem the economic downturn.
• The growing issuance of public-sector debt has contributed to maintaining high domestic borrowing rates and a crowding out of the private sector in the domestic capital markets.
• Third-quarter GDP data confirmed that growth had slowed to 2.7% from 3.2% and 3.6% in the second and first quarters respectively. Apart from agriculture, all sectors decelerated.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;10
NAICS Code: 52;212