Country Report Guatemala July 2009

Outlook for 2009-10

• As political difficulties mount and economic conditions worsen, the president's popularity will suffer and alliance-building will become more complicated, weakening government effectiveness.
• The fiscal deficit will reach 3.8% of GDP in 2009 as a marked contraction in private consumption hits value-added tax (VAT) revenue and lower trade volumes dent revenue from import duties.
• We expect Guatemala's economy to contract by 2% in 2009, reflecting a deteriorating external environment, weaker private consumption and tight credit conditions. Recovery in 2010 will be weak, at 2.2%.
• We have revised our average inflation forecast for 2009 to 3% (previously 4%) as weak domestic demand will offset inflationary pressures coming from a weaker quetzal and despite weak oil and soft commodity prices.
• Our forecast that the quetzal will undergo only a moderate weakening in 2009-10 is based on the assumption that the central bank will intervene decisively in the foreign-exchange market.
• The current-account deficit will narrow in 2009, despite falling exports, as the import bill shrinks at a more rapid rate.

Monthly review

• The Ley de las Comisiones de Postulaciones, aimed at enhancing transparency in the judicial system, faces legislative obstacles.
• Although the Honduras political crisis has generated mixed reactions among political parties, it has not affected stability in Guatemala, despite the political turmoil triggered by the Rosenberg case.
• Falling revenue and sharply rising expenditure have led to a marked widening of the fiscal deficit, leading the government to request authorisation for more bond issuance.
• Annual inflation hit 0.6% in June as domestic demand continued to fall. A lagged effect of a weaker quetzal should ensure inflation remains in positive territory.
• The quetzal underwent a marked depreciation (Q8.15:US$1 at end-June from Q8.11:US$1 a month earlier), owing to falling exports earnings and tourism receipts coupled with a contraction in workers' remittances.
• A marked slowdown in external demand is weighing on the export performance of traditional products.
• Preliminary data from Banguat for the first four months of 2009 show the value of net maquila exports declining by 28% year on year to US$145.6m.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;37;70;53;49;82;2834;80;20;22
NAICS Code: 52;336;72;44;22;61;3254;62;311;313