The Central Reserve Bank Forecasts Growth for the Economy of El Salvador in the Coming Year
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The nation’s Central Reserve Bank (BCR) predicts that, because of confidence generated by the government of Nayib Bukele, the economy of El Salvador will grow at a rate of 2.5% in 2020.
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The Central Reserve Bank (BCR) forecasts that the economy of El Salvador will expand at a rate of 2.5% in the coming year. This is despite an adverse investment climate in Latin America and the political situation in the United States.
A preliminary balance sheet of the Economic Commission for Latin America and the Caribbean (Cepal) that was released in mid-December 2019, indicates that, although growth for the region as a whole will remain moderate, the economy of El Salvador will see expansion as a result of policies that have been adopted and promoted by the country’s president, Nayib Bukele.
The president of the BCR, Nicolas Martinez, recently noted that it is the “internal factors” that will determine the growth trajectory of the economy of El Salvador in 2020.
Specifically, Martinez credits a paradigm shift in the public sector that has taken place as a result of the installation of the Bukele administration. According to the president of the BCR, the Bukele government has implemented “a more pragmatic, and more user-friendly view of the private sector.” This new pro-business approach will have a “positive impact” on the economy of Central America’s smallest nation. As a result, both domestic and international investors are expressing that they are feeling more comfortable and that they have reactivated their investment plans.
Nayib Bukele assumed power in June 1, 2019 as a candidate of the right-leaning Grand Alliance for National Unity (GANA) after defeating the candidates of the country’s two traditional leading parties, the Nationalist Republican Alliance (ARENA) and the Faribundo Marti National Liberation Front (FMLN). Prior to GANA’s 2019 victory, one of the two main parties (ARENA and FMLN) have occupied the country’s presidency continuously for the last three decades.
The Trump Factor
The United States is El Salvador’s main trading partner and, as such, has a great influence on the economy of El Salvador. According to information compiled by the BCR, one of the major factors that prompted the poor performance of the country’s economy during the first half of 2019 was the trade war between the United States and China.
According to Nicolas Martinez, El Salvador’s Central Reserve Bank supports the US Federal Reserve’s forecast that the United States economy will grow at an average rate of 1.9% over the next four years. The institution’s economists also believe that the pace of US economic expansion will in no way be affected by the impeachment process facing President Donald J. Trump.
GDP expansion of the economy of El Salvador could reach 3%
Martinez also believes that meeting the “good expectations” generated by the Bukele administration could help to boost El Salvador’s Gross Domestic Product (GDP) by up to 3%. He noted that these expectations are linked to plans aimed at addressing the country’s security issues, the new-found cooperation between the major political parties, new programs to bring more workers into El Salvador’s formal economy, and the execution of several large physical infrastructure projects. If all of these things materialize, Central Reserve Bank officers believe that the economy of El Salvador can surpass the 2% growth that it has experienced for most of the past ten years.
Economic Recovery
El Salvador’s economy recovered its pace in the third quarter of 2019 from the uncertainty that was generated by February’s presidential election. During this period, the economy of El Salvador grew at a rate of 2.7%. Martinez points out that “in the third quarter the economy was more dynamic than in the first and second quarters,” which recorded a total growth of 2.3% and 1.9% of GDP, respectively. The president of the BCR also emphasizes that the country grew “little” and recorded a “slowdown” during the first six months of the year. This lapse was driven by the presidential elections and the fact that fiscal issues and issues pertaining to economic reform were yet to be clearly defined.
Finally, Nicolas Martinez, notes that this situation was overcome in the third quarter and was aided by the high approval rating achieved by the newly installed Salvadoran government. In a very short period of time, the administration of President Nayib Bukele has succeeded in creating what is perceived by the private sector to be a pro-business climate.
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