Country Report El Salvador 1st Quarter 2015

Update Country Report El Salvador 02 Oct 2014

GDP expands moderately in second quarter


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.


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.

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