The Economies of Central America and the Dominican Republic Will Grow 4.4% in 2018

The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that average growth for the economies of Central America and the Dominican Republic (CADR) will reach 4.4% in 2018, representing a 0.4 percentage point increase over what was recorded in 2017. This is according to the report Central America and the Dominican Republic: Economic Evolution in 2017 and Prospects for 2018. Preliminary Overview, published recently by the organization’s Subregional Headquarters in Mexico.

The document adds that consumption and investment are expected to decelerate, due to fresh increases in interest rates and price levels, but this will be compensated by greater dynamism in goods and services exports and in remittances.

According to the publication, in 2017 economic activity decelerated in the CADR countries, with an average growth rate of 4% versus 4.6% in 2016. Nonetheless, this rate is higher than what was recorded for Latin America and the Caribbean as a whole (1.3%).

The report produced by ECLAC indicates that reduced overall dynamism in the CADR countries in 2017 can be attributed primarily to a deceleration in Costa Rica and the Dominican Republic, due to lower growth in private consumption and the impact of adverse climate phenomena, in the case of the former, and to a slowdown in domestic demand – and investment in particular – in the latter.

Domestic demand was a robust growth driver in the CADR countries throughout 2017, but nonetheless marked a deceleration in relation to 2016. Domestic consumption expanded at an annual rate of 3.8% (4% in 2016), while gross fixed capital formation actually accelerated (5.7% versus 5.2% in 2016). The rise in interest rates and the increase in inflation had a moderate impact on domestic demand. Meanwhile, goods and services exports grew at a real rate of 5% (2.9% in 2016), in a context of greater global economic activity and a rebound in international trade.

Meanwhile, the central governments’ fiscal deficit in the CADR countries reached 2.4% of GDP in 2017, slightly below the 2.5% observed in 2016. The economies of the Dominican Republic, El Salvador and Panama reduced the central government’s fiscal deficit, while Costa Rica and Honduras showed the highest coefficients, with 6% and 3.2% of GDP, respectively. The report adds that the debt trajectories and levels of Costa Rica and El Salvador are cause for concern.

The current account of the CADR countries as a whole ended 2017 at 1.9% of GDP (2.3% in 2016), marking a third consecutive year of reductions. The positive variation of prices for the majority of basic export products partially compensated the rise in international fuel prices.

Finally, average interannual inflation (December-December) in these countries totaled 3.6% in 2017, 1.6 percentage points above the level seen in 2016. This rate, which contrasts with the low levels observed in previous years, was affected by foreign exchange rate dynamics and carryover from variations in international commodities prices.

Central America and the Dominican Republic:
GDP growth rates, 2016-2018

(In percentages)

^a The 2017 figures correspond to ECLAC’s estimates. For Costa Rica and the Dominican Republic, they correspond to (preliminary) official growth figures.

^b The figures for 2018 correspond to ECLAC’s projections.

^c Corresponds to the weighted average.