“Guatemala’s economy will not fall into recession next year,” say Banguat, Cacif and McKinsey

Free Press held the conversation yesterday “Economy on Alert: should we prepare for a recession in 2023?”, in which Álvaro González Ricci, president of the Bank of Guatemala (Banguat) and the Monetary Board (JM), participated; Hermann Girón, president of the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (Cacif); and Santiago Carbonell, partner and location manager of McKinsey & Company.

The general conclusion, in which the speakers agreed, was that Guatemala is prepared to face external shocks, so a recessive process during the next year is ruled out. And if in any case, this occurs abroad, internally there are mechanisms and instruments to deal with it.

To the question, what are the recommendations, in the event that a recession will occur? González Ricci emphasized: “There is not going to be a recession; we have it measured and contemplated. The countries are already composing themselves”.

He then explained that the United States economy has already grown (after two quarters of decline) and now the expectations are positive, apart from the fact that in most countries it is already observed that the economy is regularizing itself, as is the case in the euro zone. , and inflation begins to subside thanks to the monetary policy instruments implemented.

He stressed that, in the case of the United States, there is a crisis, but at the same time there is total employment, and that “balance” that the most important economies in the world are achieving clearly says that there will not be a recession. He cited another case such as the economy of the People’s Republic of China, which is another important player, where it is not going to grow 7%, but 3.5%, but a scenario in which a recession occurs is not seen.

how the economy is doing

During the conversation, the president of the central bank indicated that for this year the economy is projected to close at 4%, which in the world environment is “extremely good”, and for 2023 a rate of 3.5% is expected, which is positive “and could be even more”.

Regarding collection, it is expected to reach a tax burden of 12%; higher flows of foreign direct investment; imports will grow up to 18% and exports 14%; a stable exchange rate is maintained “despite the noise generated by an appreciation of 1.9%, which is nothing”, while family remittances would be closing at around US$18 billion.

“Despite the fact that there are crises in all parts of the world and in Guatemala we are going to have problems because we are no strangers to what is happening in the rest of the countries, we are going to be able to overcome them, as we have done in previous crises,” he assured.

Carbonell emphasized the stability of the quetzal, because despite the fact that there is a global scenario of inflation in dollars for imported products, in other countries the effect on prices is double digits in food and fuel, but in Guatemala there is stability.

Another point he pointed out is that despite the fact that the United States is in a complicated context, it continues with a positive labor demand and that will mean that remittances will continue to enter the country.

“There is desire and an alignment between businessmen and the public sector in the Guatemala No Se Detener plan, which is not seen in other countries and that contributes in part to decision-making,” he assured.

Take advantage of nearshoring

For his part, the president of Cacif stated that, since the end of the pandemic, Guatemala has positioned itself as a destination for nearshoring, since it is a trade ally with the US; there is geographical proximity to that country; lots of growth potential; a labor force of two to three million people of productive age for the next few years; “And the Guatemala Does Not Stop project is important, which is a route for the next 10 years, to be able to generate US$300 million in foreign investment and two million jobs.”

He added that all of this should be strengthened with greater effort in training young people, especially in vocational education, talents and skills to be able to integrate into sectors such as light manufacturing, attention and services in call centers, the pharmaceutical industry and food products.

“More than the end of 2022, we are thinking about the next 10 years, and the great challenge after the 2023 election year is that whoever takes charge of the new government continues on the route of Guatemala Does Not Stop to generate productivity, infrastructure and an impact on the formal labor force, so that these employment opportunities are given in Guatemala”, he specified.

“Inflation will return to the target”

Regarding inflation, González Ricci the official was emphatic: “we will do everything so that, for the next year, inflation returns to 5% and we have the mechanisms to do it and it will be done, without a doubt.”

He also admitted that today Q130 is needed to buy what used to cost Q100, but Guatemala is affected by what happens abroad and if prices rise in the United States, especially oil derivatives, “it automatically hits us in Guatemala.” .

The mechanism to control inflation and that is already being used is the leading rate, which in the pandemic was lowered to 1.75%, and has now risen to 3%, but it is the reference that is being used in several countries around the world to counteract the price escalation.

However, he acknowledged that one of the problems when raising the leading rate is that the active and passive rates of the banks also increase, and that is where other problems begin, such as the additional cost of loans, that generates an economic slowdown and “there turn begins.”

“In Guatemala, we are managing the leading interest rate very prudently, despite the fact that there is an 18% growth in bank credit from the private sector and that means that there is demand, investment and consumption because it is prudent. The most important thing is the generation of expectations, which is the most powerful and short-term mechanism for lowering inflation is the generation of expectations. And how are we going to do it? Through the leading rate and the exchange rate, which are the channels we are working on”, she highlighted.

On the subject, Carbonell pointed out that it should provide peace of mind, due to the caution with which the interest rate is handled, despite the unique economic context on a global scale, due to an inflation generated by lack of supply. “The way I see it, there are a lot of central banks that are raising rates to kill demand, which is going to lead to a deep recession in many parts of the world,” he said.

Private Sector Outlook

The president of Cacif highlighted the improvement in Guatemala, which has been reflected in the country-risk rating agencies, and confirms that things are being done well. On the elements that must be worked on to build a better path are:

• Build and improve human capital: Vocational training and the opportunity to provide internships in companies in order to build a career.
• Transport infrastructure, ports and airports: The growth of the economy is limited to 4% because there is no good infrastructure, so one of the great challenges is to improve it for local benefit and for export.
• business climate: The laws approved in the last 18 months have given the opportunity to improve the business climate and open opportunities. The part-time, the leasing and of factoring, they give working capital to commercial agents that did not exist before.
• Institutionality: Institutional strengthening and access to prompt justice is an important issue, as well as freedom of expression, “so we all have to work in that direction.”

In his opinion, these are the elements that can be transmitted to the microeconomy, so that the living conditions of Guatemalans improve.

And Carbonell stressed that, although there is no perfect recipe, in most countries the middle class is growing, which demands more, and that is where growth must continue, invest in infrastructure, jobs, welfare and health, since Guatemala has potential to attract investments in the part of industries, pharmaceuticals, textiles and tourism.

Time to invest?

To the question of whether in the face of a possible crisis it is a good time to invest in real estate, apply for loans or save, Girón replied that in general, it is a good time to invest in Guatemala and that if one of the concerns is inflation, the option is to put that money in a business, in an investment, in a real estate or a venture.

“I am super optimistic and in view of the fear that money will lose its value, in productive assets it is more protected, versus what is in a bank account, although it should not be lost sight of that the funds deposited in the banks return to the productive economy.

Vision 2023

Regarding expectations for next year, Girón said that it will be an election year and that normally brings uncertainty, but it was outside the one caused by the time of the pandemic, so the political issue could not be worse.

In his opinion, the elections in the United States play an important role, since they can generate an impact in the country due to the treatment of migrants and international aid issues. But aside from that, there are opportunities for various sectors such as construction, which generates a spillover of employment because it is very broad.

Also in the export sector, agriculture, formal and informal trade, banking and finance, etc. “There are valid and enormous opportunities to take advantage of in any of the sectors,” he pointed out.