Country Report El Salvador 1st Quarter 2015

Update Country Report El Salvador 02 Oct 2014

GDP expands moderately in second quarter

Event

El Salvador's GDP grew by 2% in the second quarter of 2014, according to the Banco Central de Reserva de El Salvador (BCR, the Central Bank), following growth of 2.1% in the first quarter.

Analysis

These latest GDP figures show a more positive growth position for the economy than other indicators would suggest, and also differ from the more negative outlook that private-sector groups are reporting. Although export sales have continued to fall this year (down by 5.4% in the year to August), there has been a 3.2% reduction in the import bill, reflecting depressed demand in some parts of the economy rather than just a fall in the price of imported oil products. Consumer purchases abroad, for instance, rose by just 1% in the first eight months of the year, while capital purchases were down by almost 3% year on year. Moreover, growth in the first half, according to the Índice de Volumen de la Actividad Económica (IVAE, the monthly activity index) was just 1.6%-although as has been noted before, there is often a divergence between the GDP data of the IVAE and the BCR.

On a sectoral basis, the GDP figures show across the board growth in all but one sector (construction, which fell by 2.3%). On the supply side, farming and fisheries grew by 2% in the second quarter (although the contribution of agriculture to overall GDP has been falling steadily in recent years), while industrial manufacturing expanded by 2.4%, largely owing to sales of non-traditional products outside the region. In contrast, sales abroad from the maquila (domestic assembly for re-export) sector have fallen by almost 10% this year. The Asociación Salvadoreña de Industriales (ASI, the Salvadoran industrialist association) said on September 11th that 2,500 jobs had been lost between December 2013 and June this year, as a result of falling business confidence and rampant crime (the government has disputed these figures). Overall, the main thrust of growth still comes from the services sector (which makes up two-thirds of the economy), in particular financial and insurance services, retail, and restaurant and hotel services.

Looking ahead, the introduction of new taxes from September-including a charge on bank transactions-plus continued frustration over high levels of crime and insecurity could hamper growth in the second half of the year.

Impact on the forecast

Our estimate for growth of 1.7% in 2014 will be slightly raised in the light of the latest figures.

© 2015 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
IMPRINT