IMF improves El Salvador's economic forecast for 2025

The International Monetary Fund (IMF) maintains its 2024 growth forecast for El Salvador and increases by 0.7 percentage points that of 2025 in its October “World Economic Outlook Report” compared to the one published in July. Despite this adjustment, El Salvador continues to be the country with the worst growth forecast in the region for that year, according to the IMF.

According to this multilateral institution, with which El Salvador is negotiating to obtain some $1.3 billion in loans at very low interest rates, our country will grow 3% of its Gross Domestic Product (GDP) in the current fiscal year and will repeat that figure for the following year.

In 2024, it will be the second lowest growing country in Central America, ahead of only Panama. The rest of the countries will exceed the 3.5% threshold. Nicaragua and Costa Rica will reach up to 4%.

The comparison is even worse for El Salvador in 2025, as it will be at the tail end of development in the region, tying with Panama. For the following year, the IMF forecasts that none of the nations of the isthmus will reach 4%.

Although the outlook for both years is not so promising for El Salvador, for economists Otto Rodríguez and Rafael Lemus, these IMF estimates are not supported by the numbers currently presented by El Salvador’s economy, since it has grown discreetly in the first two quarters of 2024 and the Economic Activity Volume Index (IVAE) does not raise its head in industry, agriculture or construction. Other key indicators, such as exports and remittances, have also fallen.

For economists, it is very difficult for the country to reach 3% this year, also due to the large number of layoffs in the public sector and the low growth in the private sector. The 2025 figure, they comment, could be understood as a rebound effect of not reaching the target in 2024, but the forecast for this one remains at 3%.

“Perhaps the Fund has additional information that has not been disclosed, such as that they are going to disburse the funds that the Government is negotiating with them. The IMF has, in the approval of this agreement, the key for the country to access more financing”, comments Rodríguez. Lemus believes the opposite, since the entity will demand El Salvador to reduce expenses and increase taxes.

“The agreements with the Fund are not expansionary. Rather, we are moving to a contractionary scenario… and I do not believe that there is a rebound effect of public investment in 2025, it is quite the opposite… it is not coherent to raise the projection”, says Lemus.

For both economists, the only way for the economy to grow in a contractionary scenario is for there to be an avalanche of Foreign Direct Investment (FDI).

The global outlook

The world economy will grow 3.2% this year and next, predicted the IMF, which expressed concern about increased uncertainty on a global scale, due to the multiplication of both geopolitical and economic risks.

“Risks are intensifying,” for example geopolitical tensions, which could push up energy prices, warned IMF chief economist Pierre-Olivier Gourinchas in an interview with AFP. But there are grounds for optimism.

“We are close” to a soft landing for the U.S. economy, Gourinchas estimated. “Consumption is doing very well and at the same time inflation continues to decelerate.” By “soft landing” is meant inflation control without recession.

Among emerging countries, China continues to show signs of weakness. IMF estimates do not take into account Beijing’s recent plans to revive its economy announced in the last few days, but, as it stands, the international economic organization forecasts 4.8% GDP growth for the country this year and 4.5% next year.

Latin America and the Caribbean follows the general trend: economic growth falls from 2.2% in 2023 to 2.1% in 2024, before rebounding to 2.5% in 2025. Compared to the IMF’s last forecast in July, the data improves for this year by 0.3 percentage points, while declining by 0.2 percentage points for 2025.

By 2024, Brazil is expected to grow 3%, Mexico 1.5%, Colombia 1.6%, Chile 2.5%, Peru 3%, Ecuador 0.3%, Venezuela 3%, Bolivia 1.6%, Paraguay 3.8% and Uruguay 3.2%. Argentina will record a contraction of 3.5% this year. However, growth is expected to rebound considerably in 2025 to 5%.

Source: Revista Summa