The members of the Monetary Board (JM) learned last night the evaluation of the economic performance in Guatemala during 2021 and it is confirmed that the economy measured by gross domestic product (GDP) will reach 7.5%, against -1.5% in 2020.
Sergio Recinos, president of the JM and the Bank of Guatemala (Banguat), spoke with Free Press on the review of the figures and addressed different topics on this result, in which the role of foreign exchange for family remittances, domestic consumption, exports and the adaptation of economic agents stands out.
The economy will generate an approximate total of Q665 thousand 51 million and the 17 productive activities considered have a positive performance, according to the official report.
How does the economy close in 2021?
In terms of economic growth, we are observing short-term indicators and we are growing above what was originally proposed and even higher than the most recent estimate of last September.
After doing an exhaustive analysis by sectors, we are forecasting that the economy will close at 7.5%. The range that was expected was 4 to 6%, with a central value of 5%, but then that range is being exceeded, by far.
What supports this figure?
We see the monthly index of economic activity (Imae) with more recent figures growing very dynamically and the quarterly GDP for the second semester growing at 15%, so we estimate that the third quarter will have substantial growth, which leads us to carry out this upward revision of economic growth for the current fiscal year.
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How did the productive activities unfold?
There are activities that had a more dynamic performance and among them are: exploitation of mines and quarries that shows a recovery of 10.7%; manufacturing industry, 7.3% which is very dynamic; construction, 9.4%; commerce, 9.3% and transportation, 11.6%.
Accommodation and restaurant activities, which although most of it is derived from domestic consumption and tourism, shows a growth of 20.4%, after having had a drop of -24% in 2020; activities related to health, 17.8%; and in other service activities, a greater dynamism was also perceived.
Why is this GDP growth unusual in 2021?
This growth was not seen in the last 40 years and the year in which it exceeded 7% was after the 1976 earthquake, which was logical, due to the whole issue of reconstruction. Of course, there is an effect that stems from the drop of -1.5% in 2020 which, by the way, we were the second country in Latin America that had the least economic impact. Even eliminating that effect that can be called “rebound” and that is being observed in the world economy, the increase is quite strong.
In your understanding, what is behind this indicator?
Definitely, it is not only the response of economic policy, but also of a countercyclical fiscal policy. Let us remember last year with a fiscal deficit of 4.8% and this year above 3%, but the executed will be less.
And monetary policy reacted very quickly last year with a 100-point drop in the leading interest rate, opening up liquidity windows. This allowed the financial system not to be impacted.
This year, monetary policy has continued with a technical stance and the leading rate has not changed; The Banguat has not recommended any changes to it so far, given that inflation is low (at 2.89% as of November) and we are forecasting that it will be at 3.25% at the end of the year.
What does that 3.25% inflation mean?
It is below the central value in the goal established by the JM and this is positive for the economy, because high economic growth and low inflation are optimal for an advanced and developing economy.
What else could have influenced that growth?
In addition to the economic policy response, the response of the Guatemalan business community also had an impact, which adapted very well, since it is dynamic and flexible, so it reacted to the new market demands.
I also refer to the Guatemalan who did not stop working and the entire informal sector, which continued to operate. Obviously, there are needs and also a mini business sector with a not so great capacity.
So there is a combination of policy on the part of the Government, the central bank and the JM as an autonomous entity and the response of the private sector in terms of being flexible and highly adaptive to new demands. In all this, the ruptures of the global chains are favoring the markets closest to the United States and that has probably also had an influence.
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What about the external factor?
The United States is Guatemala’s main trading partner and we are talking about the fact that about 35% of exports go to that market, while 45% of imports come from that country.
In recent years, markets and products have been diversifying, but even so, the US remains the most important market.
With all the fiscal stimuli that were given in that country, both for employment and unemployment, people of Latin American origin benefited, not only from Guatemala, which allowed them to maintain their income and even exceed it. This, in turn, allowed the sending of more family remittances.
In short, economic growth formed a V
Indeed, the recovery was in the shape of a V, but one more than full, since it exceeds the growth of 2019. It even exceeds the highest recent growth of 6.3% in 2007.