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Researchers at the prominent Latin American financial services company, Grupo Bancolombia, anticipate that economic growth in El Salvador will make the country an attractive investment destination in 2020.
All indications are that economic growth in El Salvador will be superior to that of other Latin American countries at the end of 2019. According to the nation’s Reserve Central Bank (BCR), forecasts are that the Salvadoran economy will close out the present year with an expansion in Gross Domestic Product (GDP) of a healthy 2.5%. All indications are that similarly positive results will be achieved in 2020.
According to Juan Pablo Espinosa, Chief Economist and Head of Economic, Industry and Market Research at Bancolombia, continued economic growth in El Salvador will make the country an attractive destination for foreign investors.
The specialist believes that an influx of productive foreign capital can become energized to act as an engine of growth for the Central American nation’s economy during the coming year. He also believes that, in order to ensure the expansion of El Salvador’s Gross Domestic Product (GDP), that the country’s policymakers must continue to adopt measures that will maintain inflation stability and impose fiscal discipline. Economic growth in El Salvador will also enhance its chances for continued expansion through the promotion of favorable regulations for entrepreneurs, as well as by implementing mechanisms to make digital adoption and innovation more widespread throughout the nation’s economy.
Espinosa added that an improvement in the prevailing security conditions found in the country will also help to secure a steady future of economic growth in El Salvador. This is an issue that will affect the willingness of entrepreneurs, both domestic and international, and foreign capital to implement productive investment in the country.
Another factor that will affect economic growth in El Salvador is domestic consumption. The International Monetary Fund anticipates that, while this growth indicator will register a modest .2% increase this year, the figure will expand to just above 1% in 2020. It is forecast that economic growth in domestic consumption in 2021 will near 2.3%. This will represent an above-average rate of performance for the entire Latin American region and demonstrates that the greatest strength and growth opportunity for a country like El Salvador remains its domestic market.
In contrast to these positive prognostications, potential threats also exist that will may affect continued economic growth in El Salvador. For instance, the global economy may just be entering a period of slowdown, or economic headwinds might affect the rate of growth of its main commercial partner, the United States. Despite these possibilities, however, Espinosa feels that the Salvadoran economy is now enjoying a period of solid macroeconomic stability. Much of this state of affairs can be attributed to the dollarization of the Salvadoran economy that was implemented in 2001. Dollarization helped the prospect of economic growth in El Salvador by enabling the country to stabilize what had been historically high rates of inflation. Evidence of these conditions has been recorded in the 2019 World Economic Forum Competitiveness Report.
Economic growth in El Salvador could be impacted by a global slowdown
Multilateral agencies such as the International Monetary Fund (IMF) have shown concern related to the performance of the world economy in 2020. This stance has been adopted, in part, by the effect on the world economy of the trade war between China and The United States.
Espinosa observes that “Simultaneous events that are occurring in the world are risks to emerging economies such as that of El Salvador. The trade war between the United States and China will be a factor for the foreseeable future. This is because the dispute between the two economic powers goes far beyond the tariff issue and into the realm of politics. In addition to tariffs and political considerations, China and the United States are at some odds over things such as the Asian giant’s development strategy, Chinese supremacy in industries such as telecommunication, as well as over issues having to do with global 5G standards. These are problems that will not be solved in the short term and will be a part of the conditions that shape the global economic landscape.”
In contrast to anticipated economic growth in El Salvador, Bancolombia researchers view Latin America’s major economies as being vulnerable. They note that economic growth amongst these countries has been expanding at a modest pace.
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