“There are recession drums, but we are prepared”, according to the president of the ABG

Luis Lara Grojec, president of the ABG, reviewed what the banking-financial sector is receiving for the coming months, in a year in which the international situation intersects with the electoral year.

The director of the ABG gave an interview to Free Press on the outlook for the sector.

How does the Guatemalan economy close the year?

It will be a year in which, obviously, economic growth will drop a little, since last year it closed with a historical growth of 8%, and for 2022 it is between 3.6 and 3.8%, below the estimate, and it is something natural so it is being seen in a world of recession drumming.

We see it with great concern in Europe, also in the US, and something that we have detected and that is logical, derived from inflation due to the excess of monetization that there was, interest rates have been increased by the Federal Reserve for 300 basic points of increases, and the last ones have been 75 points each. Some forecast that there are still 100 basis points of increase for the rest of the year, and we will be attentive to what happens.

I don’t know if it will be that much, since with these recession drums that are being heard, that projection will probably be lowered a little, but we don’t know.

Another effect that is taking place in the world is the conflict between Russia and Ukraine, which, instead of finding a way out, continues and obviously causes concern that has implied an increase in raw materials and shortages.

It is clear that Guatemala is not an island, and it has a lot to do with the United States and Central America, and it will undoubtedly affect us.

I think that, as a country, we are prepared to be able to face this type of situation that is coming and we are going to get ahead very well. Economic growth will not be the same this year as it was in 2021.

Is this behavior acceptable?

In the midst of this context, we are fine, although before there was talk of GDP growth of up to 4.5%, and possibly it will drop to levels of 3.6 to 3.8%, which is more than acceptable, it is very good for what is being experienced, but obviously is less than previously anticipated.

There are current issues such as the exchange rate, interest rates and inflation. What is the reading of the sector?

In the world there have been drastic changes in interest rates to control inflation, and this was an issue that had to be given, because there was an excess of monetization on a global scale, and then come the consequences, but everyone had to help and it had to be done, but it would have been better with more measure.

This excess of monetization translates into monetization, and we see that in several countries the inflation indicators are much higher than expected, and the nations are increasing interest rates, which is an obvious measure, trying to restrict and “tighten” a little monetary policy.

The problem that we have analyzed is that for all this to take effect, there has to be a control of fiscal policy, in the sense that if you are strict you do not control – fiscal policy – it is of little use, and what is I would expect for there to be some control on the issue of prices, it is for governments to understand that they must be strict in their fiscal policy, and that in the end it is good because we see that many countries have a level of debt above what is acceptable.

In the exchange rate?

On the subject of the exchange rate, it is something that we are experiencing, and it is due to different factors: one of them that everyone comments on is seasonality due to imports that have increased substantially, the trade deficit this year will probably be around US$15 billion and US$16 billion and it will be historic, it definitely has an impact, because now there are many importers who are buying dollars to prepare for the end of the year.

The other aspect that I think is affecting is that in Guatemala the interest rate has risen very little, and in fact the leading interest rate is below the Fed’s, and has never been seen before, and a “quetzalization” of credits, that is, there are people who have credits in dollars and if they offer the same rate in quetzales, they are better “quetzalized” and it is something that is happening.

On the other hand, there is also a bit of a lack of liquidity in dollars, and what happens is that many companies in the US, which are observing that the interest rate is increasing, instead of lending or investing, they are left with immediately available liquidity, because they anticipate that the interest rate will continue to rise. This lack of liquidity in dollars also makes banks more tempted to quetzalize more operations, which in turn have generated an extraordinary demand for dollars, and I consider that it is a passing issue, which will be resolved either at the end of October or November. , and I would not be surprised if at the end of the year, the similar exchange rate was closed before this situation.

There is no need to be alarmed, and it is perfectly normal. If the exchange rate has moved, it is only 2%, and it is not an excess, and it will be controlled.

In interest rates, what could be expected?

What has risen a lot is the interest rate in dollars. For example, the lines of the correspondents -banks- that is to say, foreign credits have risen 300 basic points, and the rate abroad has risen a lot, the local one has not.

I believe that there may be some increases, but they will be very few, and I do not see that there will be large increases, since a high component of inflation is imported, and there is little that can be done from the monetary point of view , although the rate can be increased a little since there is some local inflation and the expectations of economic agents have to be combated. So we see a slight increase, but it will not be something drastic.

For which segments?

I would think that for some segments; I see that housing (mortgage) and consumption are going to remain the same, but the minor business and major business could raise the interest rate a little, but it won’t be much, and I would see no more than 100 basis points.

You have to wait, and in fact, the leading rate has increased by around 125 basis points, and I would think that it could go up a little more, but it will not be much.

Would there be any credit crunch?

No, we don’t see it, and we have to continue investing in the country, a lot of foreign investment comes, and those movements are quite small. It will not be an obstacle for the economic development of the country, and there is liquidity.

Of these variables, is there any fear of banking?

No. The following year is political, and we hope that all the country’s regulations are respected, and no major changes are perceived.

What is the pulse of banking for the economy in 2023?

We see it as a good year, and we see that much more foreign investment is coming than was the case before, and we hope that the political panorama develops normally.

It will not be an extraordinary year, because I do believe that there will be recession drums at the international level, and that the countries of the developed economies are not going to have such a good time; when we talk about recession or low growth, it is going to happen and all of 2023 is going to be spent in it.

Guatemala will be a little affected, and it will be an intermediate year, precisely because of everything that is happening abroad, but it will not be a bad year either, because the economy and the macroeconomic indicators are robust and now with a lot of foreign investment.

A challenge for the country is investment in infrastructure, especially in highways. In infrastructure, it should be homologated as it was done with the telecommunications and electricity issue, although it is different, it must be coupled, and seek that the private sector be the one that invests and there is the ease of project management.

Is it still a myth that the incidence of an election year will affect the business climate?

90% of the GDP is produced by the private sector, and as long as everything develops in peace, what the private sector is looking for is to work internally, because the external sector will be a little affected.

What are the engines of the economy for 2023?

Foreign investment can be one and very relevant, and by 2024 onwards, hopefully infrastructure will be the engine of the economy. There will be a lot of investment in textiles and services, if there is movement and in a while we will see the results

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