IMF Improves El Salvador’s Forecast for 2025, but Remains Central America’s Lowest — FMI mejora previsión de El Salvador en 2025, pero es la menor de Centroamérica

Oct 23, 2024

Predicts that the country will grow by 3% that year. However, according to consulted economists, this increase is not consistent with the numbers recorded by the Salvadoran economy. — Vaticina que el país crecerá en un 3% ese año. Sin embargo, para economistas consultados, dicha subida no es coherente con los números registrados por la economía salvadoreña.

The International Monetary Fund (IMF) maintains its growth forecast for 2024 for El Salvador and increases the 2025 forecast by 0.7 percentage points in its “World Economic Outlook Report” of October compared to the one published in July. Despite this adjustment, El Salvador continues to have the worst growth forecast in the entire region for that year according to the IMF.

For this multilateral institution, with which El Salvador is negotiating to obtain about $1,300 million in loans at very low interest rates, our country will grow 3% of its Gross Domestic Product (GDP) in the current fiscal year and repeat that figure for the next.

In 2024, it will be the second slowest-growing country in Central America, just ahead of Panama. The rest of the nations will exceed the 3.5% threshold. Nicaragua and Costa Rica will reach up to 4%.

The comparison is even worse for El Salvador in 2025, as it will fall to the bottom of regional development, tying with Panama. For the following fiscal year, the IMF predicts that none of the nations in the isthmus will reach 4%.

Although the outlook for both years is not very promising for El Salvador, economists Otto Rodríguez and Rafael Lemus believe these IMF estimates have no basis in the current figures of El Salvador’s economy. It has grown slightly in the first two quarters of 2024, and the Volume Index of Economic Activity (IVAE) is not improving in industry, agriculture, or construction. Other key indicators, such as exports and remittances, have also declined.

For these economists, it is very difficult for the country to reach that 3% this year, also due to the large number of layoffs in the public sector and the little growth in the private sector. The 2025 figure, they comment, could be understood as a rebound effect from not reaching the goal in 2024, but the forecast for this remains at 3%.

“Maybe the Fund has additional information that has not been revealed, like if they are going to disburse the funds that the Government is negotiating with them. The IMF has, in approving that agreement, the key for the country to access more financing,” commented Rodríguez. Lemus believes the opposite, as the entity will demand El Salvador to cut expenses and increase taxes.

“The agreements with the Fund are not expansive. Rather, we are moving to a contractionary scenario… and I don’t think there is a rebound effect of public investment in 2025; it’s quite the opposite… it’s not consistent to raise the projection,” says Lemus.

For both economists, the only way for the economy to grow in a contractionary scenario is for a wave of Foreign Direct Investment (FDI) to occur.

The Global Outlook

The global economy will grow by 3.2% this year and next, predicted the IMF, expressing concern over rising global uncertainty, due to an increase in both geopolitical and economic risks.

“Risks are intensifying,” for example, geopolitical tensions, which could drive up energy prices, warned IMF chief economist Pierre-Olivier Gourinchas in an AFP interview. But there are reasons for optimism.

“We are close” to a soft landing for the U.S. economy, estimated Gourinchas. “Consumption is doing very well and at the same time inflation continues to decelerate.” A “soft landing” means controlling inflation without a recession.

Among emerging countries, China continues to show signs of weakness. The IMF’s estimates do not consider recent plans from Beijing to reactivate its economy announced in recent days, but in the current state, the international economic organization predicts the country will have a 4.8% GDP growth this year and 4.5% next year.

Latin America and the Caribbean follow the general trend: economic growth decreases from 2.2% in 2023 to 2.1% in 2024, before rebounding to 2.5% in 2025. Compared to the latest IMF forecasts in July, the data improves by 0.3 percentage points for this year, while dropping by 0.2 points for 2025.

For 2024, Brazil is expected to grow by 3%, Mexico by 1.5%, Colombia by 1.6%, Chile by 2.5%, Peru by 3%, Ecuador by 0.3%, Venezuela by 3%, Bolivia by 1.6%, Paraguay by 3.8%, and Uruguay by 3.2%. Argentina will see a contraction of 3.5% this year. However, growth is expected to rebound considerably in 2025, reaching 5%.

EDH: https://www.elsalvador.com/noticias/negocios/crecimiento-economico-fmi-centroamerica-el-salvador/1176414/2024/

El FMI mejora previsión de El Salvador en 2025, pero es la menor de Centroamérica