Economies in Central America and the Dominican Republic (CADR) can only grow an average of 4.4% in 2018, as the region is experiencing a deceleration in private consumption and investment.
Nonetheless, the growth will still be 0.4 percentage points higher than last year, because exports and remittance flows from the US are on the rise, according to the Economic Commission for Latin America and the Caribbean (ECLAC).
Inflation has already pushed up interest rates and will likely cause businesses to hold off on investments in the region. This scenario has already had a moderate impact on domestic demand in 2017, with Costa Rica and the Dominican Republic seeing a decrease in private consumption.
Average inter-annual inflation 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, the report added.
Thanks to the increase in exports, governments in El Salvador, Dominican Republic, and Panama have managed to reduce fiscal deficit, albeit slightly, but growing debt is posing new challenges for Costa Rica.
CADR countries on the 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.