Although it has reduced its dependence on the USA as an export destination, Guatemala could find new opportunities with the expected shift in the trade policy between the US and Mexico.
Analysts recognize the value of finding other markets but also warn about the importance of continuing to watch the events in light of the statements made by President-elect Trump during his campaign regarding a possible revision of the Free Trade Agreement (FTA) with Mexico.
Perception of corruption cases and the execution of the government budget may be influencing perceptions of economic performance, which is also affected by factors such as fiscal issues, fuel prices, inflation, the exchange rate and interest rates.
The Bank of Guatemala has left the monetary policy rate unchanged, citing uncertainty and weakness in the international context, and expects growth of 4.9% in GDP in 2017.
In the domestic environment the Bank of Guatemala (Banguat) stressed that economic activity continues to record behavior consistent with the target range for 2016 (between 3.1% and 3.7%), which is reflected in the evolution of severaleconomic activity indicators (Monthly Index of economic activity, bank credit to the private sector in domestic currency, volume of imports and remittances, among other things).
In the first nine months of the year the Bank of Guatemala has intervened in the exchange market with $1 billion in order to keep the Quetzal from appreciating further.
The increasing flows of remittances coming into the country are the main reason behind the appreciation of the Quetzal against the Dollar. So far this year the Bank of Guatemala has had to intervene by acquiring more than $1 billion, thus increasing monetary reserves.
A bill being promoted by the executive branch seeks to authorize the Bank of Guatemala to finance the capitalization of a bank when it faces problems affecting financial stability.
The aim of this initiative is to adapt the rules on financial supervision and risk control to international standards, to prevent the stability of the domestic financial system from being affected when a bank has liquidity or solvency problems.
Strong growth of remittances and savings in the oil bill are two of the factors responsible for an increase in the supply of dollars which is putting downward pressure on its price against the quetzal.
Appreciation of the Guatemalan currency against the US currency is also due to lower demand for dollars in the local market, according to statements made by the president of the Bank of Guatemala to S21.gt.
In the first half of 2016 the country received $3.512 billion in remittances, almost 20% more than in the same period in 2015.
The figure achieved in the first six months of the year contrasts with the same period in 2015, when Guatemalans living abroad sent $2,955 million back to their country.
Elperiodico.com.gt reports that "...For the fourth consecutive month income from family remittances exceeded $600 million. According to the Central Bank, Guatemalan households received $614.7 million in June in transfers from abroad. "
Amcham said that the lack of a clear strategy to attract foreign investment and uncertainty over key issues such as the emergent employment law are causing the country's business climate to deteriorate.
Despite growing by 3.39% year on year in April, ending the downward trend seen in the growth rate, the commercial sector reported a weakening of sales.
A report by the Bank of Guatemala notes that"...up to April 2016 economic activity, measured by estimating the IMAE, increased by 3.4% (3.0% in April 2015).This result was driven by the positive performance seen mainly in the following economic activities: Manufacturing Industries; Wholesale and Retail sales; Financial, intermediation, insurance and auxiliary activities; private services; Transport, storage and communications; and supply of electricity and water collection. "
The Guatemalan economy grew by 4.1% during the last quarter of 2015, driven mainly by buoyant banking and insurance industries.
From a statement issued by the Bank of Guatemala:
In the fourth quarter of 2015 economic activity measured by the estimated real gross domestic product showed growth of 4.1% similar to that observed in the same quarter of the previous year, driven mainly by the dynamism in private consumption spending.
The decision was made in response to economic activity, family remittances and credit to the private sector showing dynamism, and the fact that inflation remains within the target.
From a statement issued by the Bank of Guatemala:
The Monetary Board (MB), based on a comprehensive analysis of the external and internal situation, after reviewing the Inflation Risks Balance, decided to keep the level of the leading monetary policy interest rate at 3%.
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