Country Report Guatemala June 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.
• Pressure on the government to meet election promises on social spending and to cushion the poorest from the economic downturn has increased the urgency of tax reform, but proposals will be watered down by Congress.
• The marked deterioration in public finances in the first four months of the year has prompted us to revise our forecast for the fiscal deficit, which is now expected to widen to 3.7% of GDP (previously 3.3% of GDP).
• The effect of the outbreak of swine flu on the important tourism sector has prompted a downgrade to our GDP forecasts, to a contraction of 2% (previously 1.5%) this year, and a rebound of only 2.2% next year.
• Inflation will average 4% in 2009, given weak oil and soft commodity prices alongside sluggish domestic demand, despite modest currency depreciation.
• 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

• Mr Colom has been implicated in the killing of Rodrigo Rosenberg, a lawyer, in a case that has embroiled a series of high-level officials in a plethora of allegations of drug-trafficking and money-laundering.
• International bodies have been brought in to investigate the Rosenberg case
• Both supporters and opponents of the government have taken to the streets, exposing divisions within Guatemalan society and the political arena.
• In the absence of swift and credible exoneration of Mr Colom from the charges connected with Mr Rosenberg's murder, the government faces the risk of political paralysis.
• Falling revenue and sharply rising expenditure have led to a marked widening of the fiscal deficit, leading the government to reconsider parts of its budget.
• Preliminary April data on the index of economic activity show that the economy is sliding into recession.
• Financing difficulties for commercial banks are impairing the availability of credit in the economy.

Source: Country Report

This report covers the following industry codes:
SIC Code: 53;60;49;48;82;70;59
NAICS Code: 44;52;22;517;61;72