Country Report Guatemala November 2008

Summary

The president, Alvaro Colom Caballeros of the left-of-centre UNE, lacks a working legislative majority, obliging him to forge alliances to pass legislation, with negative implications for governability.
Pressure on the government to step up social spending in line with election commitments will underscore the importance of government efforts to implement reform of the tax system in 2009 and 2010.
After slowing to 3.9% in 2008 GDP growth will drop to 2.1% in 2009 as recession in the US hits private consumption, investment and exports hard. A modest recovery will occur in 2010, with the economy growing by 3.2%.
After overshooting the 4-7% target band in 2008 by a wide margin, inflation will moderate in 2009 as oil prices fall and domestic demand slows, but will remain outside the central bank's target band.
The current-account deficit will narrow in 2009, despite falling exports, as import demand wanes. The risk of a drying up of short-term capital inflows has increased the prospect of the government facing financing difficulties.

The Colom government scored a rare political success in October when it managed to secure the election of a UNE member of Congress as president of the legislature.
The return to Guatemala of a former president, Alfonso Portillo Cabrera, following his decision to end his fight against extradition from Mexico (where he fled in 2004) could complicate politics if he is acquitted of corruption.
The central government accounts deteriorated in September as slowing revenue growth alongside a slowing economy turned the surplus recorded since the start of the year to deficit.
The government has announced its intention to seek approval of a supplement to the 2009 budget proposal to address a planned increase in security spending.
Signs of economic slowdown resulting from the impact of a sharply slowing US economy has been most visible in three areasslowing growth of remittances, exports and tourism.
Although the authorities remain upbeat on the health of Guatemalas banking sector, an increase in past-due loans and central bank measures to provide liquidity to banks in difficulty suggest a deterioration in environment.

Source: Country Report

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