Country Report Guatemala January 2009

Outlook for 2009-10

• Mr Colom lacks a working legislative majority and the alliances he has built in his first year in office will break down as economic difficulties mount in2009-10.
• Pressure on the government to step up social spending in line with election commitments will underscore the government's need to implement tax reforms in 2009-10, but they are likely to be watered down by Congress.
• Our projection of a slowdown in real GDP growth in 2009 assumes that enhanced access to the US market under DR-CAFTA will place a floor under the decline in exports.
• We have revised downward our forecast for inflation in 2009 to an average 7.2% (previously 11.9%), owing to a projected sharp deterioration in domestic demand growth and falling fuel and transport prices.
• The quetzal is forecast to undergo a moderate adjustment in 2009-10 as capital inflows weaken, but currently our projections imply that the quetzal will remain strong in real terms, underscoring the risk of a sharper correction.
• The current-account deficit will narrow in 2009, despite falling exports, as import demand wanes and the oil import bill falls.

Monthly review

• As part of its plan to reshape and strengthen national security, the Colom government has undertaken two major reshuffles of security posts.
• Political tensions inside the minority centre-left Unidad Nacional de la Esperanza (UNE) government have prompted ten deputies to break away and form a new parliamentary group, Bloque de Libertad Democratica.
• Slowing revenue growth contributed to a fiscal deficit for the fourth consecutive month in November.
• The Central Bank has kept rates on hold, despite evidence of sluggish GDP growth and easing inflationary pressures.
• October data for money supply (M1) show that domestic demand is weakening sharply as a result of slowing remittances, higher lending rates and weaker credit growth.
• Despite the ongoing deterioration in international capital markets, the banking system ended the year in good shape, although signs of stress have started to arise.

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

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