The International Monetary Fund warns that the Guatemalan economy is doing very well, but it must anticipate and overcome many risks

Although the short-term indicators are strong and healthy, except for inflation, the International Monetary Fund (IMF) is already anticipating some effects of the global situation on the Guatemalan economy, which is why all variables will be reviewed again in October with a year-end view

Emilio Fernández-Corugedo, Head of Mission of that organization in Guatemala, participated in a presentation on this report with representatives of the Foundation for Development (Fundesa) in which he provided a perspective for the fourth chapter review that took place at the end of the first quarter of this year, highlighting the resilience of the national economy And his ability to recover after the epidemic.

In addition, it released a risk map for Guatemala It highlights the internal and external difficulties that the country must face and overcome to maintain macroeconomic stability and achieve the expected economic growth for this year.

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Fernandez-Corogido explained that there are some downside risks (the potential for economic growth to be lower than expected) that have materialized and others that are deepening, especially external ones.

The three risks with high probability, but medium impact are: escalation of sanctions and other disruptions due to the conflict in Ukraine; increase and volatility of food and energy prices; As well as geopolitical tensions and the decline of globalization.

Whereas, the risks of unwinding inflation expectations in developed countries are a potentially significant impact.

We see that many of these risks have materialized and that some are deepening. The conflict is also spreading and there is a significant increase in food, fuel and energy prices, which has also had implications in Guatemala,” he stressed.

The head of the mission stressed that there is an economic slowdown taking place in the United States, and although it is not yet possible to talk about a recession, the results of the second quarter show that there is a contraction. The same is happening in the European economy, as well as in China, which will have consequences for the global economy.

Regarding internal risks, he noted the potential for social discontent as a result of the rising cost of living, despite social supports such as subsidies, which caution has been taken when withdrawing.

It also indicated political instability. increase in the frequency and severity of natural disasters; Low financial income compared to public investment needed by the state; and deterioration in the quality of the loan portfolio (increased delinquency).

Therefore, the IMF recommended ensuring that poverty and inequality do not exacerbate, strengthening social protection and income mobilization programs, in addition to promoting reforms to improve the investment climate, retain talent and benefit from the demographic dividend (a high proportion of the population). useful life).

“The Guatemalan economy is very well positioned to meet these risks, and it is strong, and we have seen that the response has already begun,” said Fernandez-Corogido, highlighting the role that family remittances have played in this. and restore exports. From 2020 to 2021.

Inflation is off target

However, one aspect that was highlighted in the forum was that when the report was prepared, there were already signs of an inflationary trend, which was later confirmed and significant increases were observed in recent months (in June the inflation rate was 7.55%).

This means a difference of more than 100% compared to May, when the index was revised and it was around 3%. We have seen a significant increase in inflation which is a bit stronger than expected; As pointed out by the Bank of Guatemala, it is closely related to the cost of fuel and food; That is, it contains a high imported component.”

This week, Prensa Libre published an interview with Sergio Recinos, President of the Central Bank, in which he stated that, like other economies, Guatemala will be closing in on high inflation, as a result of international influences, and expectations indicate that it may be. about 6%.

In any case, the head of mission recognized that the inflation expectations targets for the past two years were still “well anchored”, and that imported inflation had risen in recent months.

Among the components that explain the behavior of this indicator, is the mention of food prices that require processing wheat, corn and other inputs from Russia and Ukraine, apart from fertilizers, the prices of which predict a lower yield than expected.

He explained that although inflation has risen in recent months, it is being contained better than in other countries in the region.