Guatemala

Growth to slow in 2025 amid external risks

In 2024, economic growth in Guatemala remained resilient, building on a strong performance of household consumption (representing around 88% of GDP in 2023) in the first half of the year. Despite some moderation in the fourth quarter, momentum was supported by solid domestic demand, driven by remittances (22% of GDP), in step with the buoyant US economy. However, headwinds are emerging, notably from external conditions, which are expected to contribute to a slowdown in GDP growth. In 2025, growth will be supported by real wage gains – a 10% year-on-year increase in the minimum wage – and fiscal expansion.

Despite the fact that inflation is set to rebound somewhat in 2025, inflation is likely to remain within target. However, external risks could offset these gains. A slowdown in the US economy risks putting a brake on remittance inflows amid a weaker labour market and tightening controls on immigration, which will drag on household consumption. In addition, the shift towards protectionist trade policies in the US under the Trump administration could create uncertainty for Guatemala's trade and investment climate, particularly in the manufacturing sector. While tariffs on key exports such as agriproducts and textiles are unlikely, cautious investor sentiment could slow nearshoring momentum. Weaker demand for Guatemalan goods could also weigh on economic performance, although exports account for a relatively small share of GDP (13% in 2023). Domestic fiscal measures and wage growth should help cushion external shocks, although overall economic momentum will depend on the balance between these domestic tailwinds and US uncertainties.

Rising public spending expected to widen budget deficit

In 2024, the budget deficit narrowed slightly as the new government managed to increase revenues (13% of GDP in 2023), notably by broadening the tax base. In 2025, the deficit is expected to widen as the government's budget includes a sharp increase in expenditure. The government estimates expenditure at 15.5% of GDP in 2025, i.e., two percentage points higher than in 2024. This increase can be attributed to higher salaries, purchases of goods and services, infrastructure projects (transportation networks, rural electrification, and water sanitation), interest payments, and expenses related to the housing of deportees. That said, additional revenue-raising measures are likely to face resistance from both the legislature and the judiciary. Nevertheless, public debt (44% of which is external) is expected to remain on a sustainable path in the medium term.

The current account surplus narrowed in 2024. Remittances maintained the large surplus in the transfers account (20% of GDP in 2023), but the trade deficit (16% of GDP) widened because of increased demand for imported goods. In 2025, the surplus will narrow further, driven by weaker remittance flows in the wake of deteriorating conditions in the US, which account for around 32% of the country's exports and almost all expatriate remittances (97% in 2021).

Government struggles with institutional opposition

On 20 August 2023, the left-wing candidate Bernardo Arévalo (Semilla party) won the second round of the presidential election, securing 60% of the vote. The unexpected victory was fiercely contested in the courts by the opposition and the business establishment, which were against the new government taking office on 14 January 2024. However, Arévalo was finally sworn in as Guatemala's president on 15 January. Since his inauguration, Arévalo has faced relentless opposition from both the legislative and judicial branches. In Congress, his government has struggled to advance its agenda, which includes social, environmental, transparency and anti-corruption reforms, as the fractured legislature's only point of consensus is to obstruct his efforts. Semilla, which holds just 23 out of 160 seats, was further weakened when its official party status was revoked by consecutive court decisions, forcing its members to register as independents. Semilla members have been prevented from securing positions on the influential nine-member board that controls the legislative agenda in Arévalo’s first year in office. Attempts to negotiate alliances with mainstream parties have met with little success as key proposals continue to be blocked.

Meanwhile, the judiciary, particularly the Public Ministry under Attorney-General Porras, has played a central role in opposing the government. Listed as a corrupt official by the US State Department, Porras has been accused of protecting political allies while targeting journalists and prosecutors. Despite these obstacles, Arévalo remains relatively popular (with a 54% approval rating in September 2024, he benefits from public sympathy for the extreme institutional opposition he faces). However, patience is likely to wear thin. As socio-economic and security problems persist including the looming challenge of integrating new deportees from the US and Mexico, frustration could replace initial support, leading to increased public discontent and even social instability. While Guatemala's economic outlook is positive, expectations for tangible improvements are high, and the government's limited ability to implement policies could further erode its standing in the coming years.

In terms of foreign policy, Guatemala enjoys strong economic ties with the US, its main trading partner. As a major source of migration to the US due to poverty and instability, Guatemala has around 3.2 million citizens living in the US, many without legal status. Trump's second term is likely to bring a more transactional and tougher bilateral relationship, with an emphasis on stepped-up border enforcement and increased deportations. Despite their ideological differences, Guatemalan President Arévalo has sought to maintain a stable relationship with Trump, likely fearing diplomatic and economic repercussions. As a result, Guatemala was quick to accept US military flights carrying deportees in January 2025. Last, during his visit to Guatemala in February 2025, US Secretary of State Marco Rubio praised the country's cooperation on deportations and its continued recognition of Taiwan as an independent nation, a stance shared by only two other American nations. In this context, Rubio's visit underscores Guatemala's strategic importance to the US on both migration and geopolitical issues.

Last updated: February 2025