Private Consumption To Drive Moderately Stronger Growth
BMI View: Well-contained inflation and relatively low interest rates will see private consumption continue to strengthen in Guatemala in the coming months, underpinning our view for an uptick in real GDP growth to 3.4 % and 3.5% in 2013 and 2014 respectively, from 3.0% in 2012. That said, we believe that a weak outlook for the country's export sector, and a poor business environment, which will keep foreign investment limited, will prevent growth from rapidly accelerating over our forecast period.
We believe that strengthening private consumption will see real GDP growth in Guatemala tick up to 3.4% and 3.5% in 2013 and 2014 respectively, from 3.0% in 2012. However, we believe that growth will be capped by a weak outlook for the country's export sector, cooling foreign investment, and tighter fiscal policies. After sluggish real GDP growth of 2.4% year-on-year (y-o-y) in Q113 due to the harmful after-effects of a major earthquake in November 2012, economic activity has showed signs of accelerating in recent months, with low inflation and strong credit growth boosting household consumption. Indeed, Guatemala's seasonally-adjusted economic activity index rose to 4.0% y-o-y in June, the highest reading since October 2011. Although the Banco de Guatemala (Banguat) hiked the benchmark policy rate by 25 basis points (bps) to 5.25% in April 2013, private sector credit growth averaged 15.7% y-o-y expansion from May through July. Given our forecast for Banguat to hold the rate at 5.25% through end-2013 in order to spur the incipient strengthening of domestic demand, we expect credit growth to continue expanding in the coming months ( see 'Growing Upside Risks To Interest Rate View,' July 24).
We also expect that inflation will remain well-contained, allowing for a continued strengthening of consumers' purchasing power. Indeed, while growth in consumer prices has picked up slightly in recent months on the back of base effects and elevated livestock prices, our Agribusiness team believes that price pressures are unlikely to spike to the same extent as seen in 2008 and 2011 due to a regional shift towards consumption of poultry - less affected by higher feed prices - over beef ( see 'Livestock Outlook - Central America Q313,' July 1). As such, we forecast average inflation of 4.8% in both 2013 and 2014.
|Growth Solidly Above 3.0%|
|Guatemala - GDP|