INDEX. No. I. GENERAL ASPECTS 1 D.

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1 INDEX No. I. GENERAL ASPECTS 1 D. A. INTERNATIONAL ECONOMIC SCENARIO 1 1. Advanced economies 2 2. Other emerging market economies and developing countries 3 B. THE NATIONAL ECONOMY 4 1. The real sector 4 2. The foreign sector 5 3. The fiscal sector 6 4. The monetary sector 7 II. THE INTERNATIONAL ECONOMY 10 A. GENERAL PANORAMA 10 B. ADVANCED ECONOMIES 11 C. OTHER EMERGING MARKET ECONOMIES AND DEVELOPING COUNTRIES 20 III. THE NATIONAL ECONOMIC ACTIVITY 32 A. GENERAL ASPECTS 32 B. GROSS DOMESTIC PRODUCT MEASURED BY THE EXPENSE DESTINATION 33 C. GROSS DOMESTIC PRODUCT MEASURED BY PRODUCT ORIGIN 34 D. GROSS DOMESTIC PRODUCT MEASURED BY INCOME DISTRIBUTION 41 E. INSTITUTIONAL SECTOR ACCOUNTS 42 F. BEHAVIOR OF DOMESTIC PRICES Consumer Index Price Subjacent Inflation Imported inflation 49 IV. INTERNATIONAL PAYMENTS BALANCE 52 A. GENERAL ASPECPECTS 52 B. PAYMENTS BALANCE Current Operations 53 a) Exports 53 b) Imports 56

2 c) Goods balance 58 d) Services 59 e) Profit 60 f) Net Current Transfers Capital and Financial Account Operations Net International Monetary Reserves 62 C. NOMINAL EXCHANGE RATE 63 D. REAL EFFECTIVE EXCHANGE RATE INDEX 64 E. EXTERNAL PUBLIC DEBT 65 F. SUSTAINABILITY OF THE EXTERNAL PUBLIC DEBT 66 V. MONETARY AND FINANCIAL SITUATION 69 A. GENERAL ASPECTS OF THE MONETARY POLICY 69 B. EVOLUTION OF THE MAIN MONETARY AGGREGATES 72 C. CREDIT ACTIVITY OF THE BANCO DE GUATEMALA 78 D. CREDIT TO THE BANKS AND FINANCIAL STOCK COMPANIES IN THE PRIVATE SECTOR 79 E. LEGAL BANKING RESERVE 81 F. INTEREST RATES In national currency In foreign currency 86 G. MONETARY STABILIZATION OPERATIONS In national currency In foreign currency 90 H. BALANCE ACCOUNTS OF THE BANKS IN THE SYSTEM 91 I. LEGAL AND IMMEDIATE CREDIT EXPANSION ABILITY OF THE BANKS IN THE SYSTEM 92 J. PAST DUE PORTFOLIO 93 K. NON-PRODUCTIVE ASSETS 95 L. BANKING INSTITUTIONS 96 M. ACCOUNTS BALANCE OF FINANCIAL STOCK COMPANIES 97 N. FINANCIAL GROUPS 98 Ñ. OFF SHORE ENTITIES 100 O. PROGRESS IN THE STRENGTHENING PROCESS OF THE NATIONAL FINANCIAL SYSTEM Strengthening of the Financial System Banking Consolidation Complementary Reform 106 VI. PUBLIC FINANCE 107 2

3 A. GENERAL ASPECTS OF THE BUDGET 107 B. BUDGETARY EXECUTION 108 C. INCOME 111 D. EXPENDITURE Expenditure according to the program and the specific objective Expenditure by instiutional destination Expenses according to their nature 116 a) Operation expenses 116 b) Capital expenses 116 E. FISCAL TILL 117 F. PUBLIC SECTOR DEBT Domestic public debt 118 a) Movement of the domestic public debt 118 b) Balance of the domestic public debt per holder 119 c) Interest rate and due date External Public Debt 121 G. MAIN DECISIONS REGARDING PUBLIC FINANCE IN STATISTICAL CHARTS AND TABLES 3

4 I. GENERAL ASPECTS A. INTERNATIONAL ECONOMIC SCENARIO According to the International Monetary Fund (IMF) 1, in 2008, the world GDP grew 3.2% (5.2% in 2007). It is worth indicating that the deceleration of the global economy was generated by the spread of the financial market of the United States of America and that international commerce deteriorated. The emerging market economies and developing countries were also affected by the reduction of their exports to the advanced economies as well as by the lower income of foreign capital. The inflationary pressures increased in 2008, although there was less economic activity in the international price of the main raw materials, especially in the second quarter, and the absence of salary increases. In 2008, advanced economies inflation was at 3.4%, higher to the 2.2% registered the year before. It is worth highlighting that in Japan, after having 0.0% inflation in 2007, the inflation for 2008 was 1.4%. As to the United States of America, the inflation rate was at 3.8% (2.9% in 2007) and in the Euro Zone it was at 3.3% (2.1% in 2007). Regarding inflation in the set of countries with emerging economies and developing countries, this was at 9.3%, rate higher to that registered the year before (6.4%). It is worth highlighting that the People s Republic of China had an increase of 1.1 percentage points in the inflation rate, going from 4.8% in 2007 to 5.9% in In emerging market economies in Europe, inflation increased, to 8.0% (6.2% in 2007), while in the Community of Independent States an inflationary rhythm of 15.6% was registered, percentage higher to the observed in 2007 (9.7%). 1. Advanced Economies 1 World Economic Perspectives, April and October IMF. 4

5 During 2008, the economic growth rate of advanced economies was at 0.9%, rate lower than that of 2007 (2.7%). In the US economy the GDP grew 0.4%, rate lower to the registered in 2007 (2.1%). The lower growth of this economy was caused, among other factors, by the contraction of domestic credit and a rise in price of goods, as well as the reduction of internal consumption, due to the drop in trust of the economic agents. Regarding the US current payments balance account, in 2008 it registered a 4.9% deficit of the GDP, which means a slight reduction of the imbalance regarding the observed in 2007 (5.2% of the GDP), which contrasts with the registered surplus in oil exporting countries, in the People s Republic of China, in Japan and other emerging Asian market economies. The reduction of the referred deficit was caused by the US dollar depreciation in International markets and by the lower dynamism of that economy in In the Euro Zone, the growth rhythm was of 0.9%, showing a reduction regarding the registered growth rate in 2007 (2.7%). Said reduction was caused by the negative incidence that the global financial crisis had on the Euro Zone s financial system, as well as a reduction in aggregate demand, domestic and foreign. In effect, the domestic aggregate demand was weakened by the lost trust of consumers, caused by the uncertainty on the continuity of the world economic crisis, while foreign demand was affected by less dynamism in the world economy. The Japanese economy registered a negative growth of 0.7% in 2008, rate lower to the observed in 2007 (2.6%). The lower dynamism of this economy was caused by the drop in domestic investment as well as in manufacturing exports. 2. Other emerging market economies and developing countries In the countries with emerging markets and developing countries group, the economic activity was at 6.0%, lower to the observed in 2007 (8.3%). The developing countries in Asia showed a growth of 6.7%, lower to the registered in 2007 (9.8%). In this group of countries, we highlight the economic expansion of the People s Republic of China, when growing 9.0% (13.0% in 2007). 5

6 This growth was due to the expansive macroeconomic policies that strengthened consumption and investment in infrastructure and, the economic growth in India that was at 7.3% (9.3% in 2007), result of the strengthening of domestic demand through lax monetary and fiscal policies. In Latin America and the Caribbean, the economic activity registered a growth rate of 4.6% in 2008 (5.7% in 2007). The lower dynamism observed in 2008 was influenced by the reduction of exports, especially to the United States of America, main business partner to the region. Added to this, these economies were affected by the reduction in tourism and family remittances, as well as by the increase to the cost of external credit and a lower income of capital. The Middle East region registered economic growth of 5.4%, in 2008 (6.2% in 2007). The slight reduction in economic dynamism of this región was due to the drop in international oil prices, by the adverse conditions of external credit, by the reduction of family remittances and less income of foreign capital. In the countries on the African continent, the economic activity grew 5.2% in 2008 (6.3% in 2007). Said behavior was influenced by the reduction in the amount and price of exports, by the drop in foreign investment, direct as well as in portfolio, as well as a significant shrinkage in the family remittances income sector and adverse conditions for obtaining international credit. 6

7 B. THE NATIONAL ECONOMY 1. The real sector The dynamism that the national economic activity had registered since 2004 reverted in Economic growth, measured by the variation of the Gross Domestic Product (GDP) in real terms, registered a rate of 3.3%, lower by 3.0 percentage points to the registered in 2007 (6.3%). This result, influenced mainly by the factors of foreign origin, because of the economic deceleration observed in the majority of countries, caused by the global financial crisis, influenced the deterioration of the expectations of the economic agents. The performance of the national economy was influenced by foreign and domestic factors. Among the external order factors we find: a less favorable environment, particularly, from the US economy and from the rest of the commercial partners of Guatemala (Central America, Mexico and the Euro Zone), and on the other hand, the presense of supply shocks, as a result of the increase of international prices of oil, wheat and corn. In the internal order, maintaining macroeconomic stability because of the application of disciplined monetary and fiscal policies, as well as the solidity of the main macroeconomic basics of the country, allow counteracting the negative effects of the world economic crisis. In the described context, it is worth indicating that from product origin, the gross domestic product showed a positive behavior in the majority of its activities in 2008; however, the observed growth rates were less dynamic than those of the previous years. Regarding the GDP components due to expense destination, in 2008, the majority registered negative growth rates or less dynamic ones than those observed in 2007, with the exception of consumption expense of the general government, which showed behavior that is more dynamic. Regarding the gross make-up of fixed capital,it registered a variation rate of -6.2%, lower to the observed in 2007 (5.0%), behavior influenced by the drop in 7

8 investment in construction as well as in machinery and equipment; headings that, in 2008, showed a variation rate of -0.5% and -11.6%, respectively (8.3% and 2.1% in 2007). As to the corresponding to foreign demand, constituted by the exports of goods and services, it registered a drop of 0.1% in 2008 (9.4% in 2007) in real terms. Said behavior is mainly explained by the loss in dynamism registered in exports of manufactured products and mining (that represent 62.8% of the total exported), which grew 0.7% in real terms in 2008 (5.6% in 2007); as well as by the drop of 1.1% observed in exports of agricultural products (growth of (16.6% in 2007). As to foreign supply, the imports of goods and services, in real terms, registered a drop of 5.6%, (7.2% growth in 2007), associated to the drop in the majority of imported goods. In effect, when analyzing the behavior of imports in 2008, it was seen that manufactured goods and mining registered a drop, in real terms, of 6.2% (7.2% growth in 2007); while agricultural and livestock goods showed a variation rate of 1.3%, less dynamics to the observed in 2007 (6.2%). 2. The foreign sector In the mentioned international economic scenario, in 2008, the payments balance registered an increase of net international monetary reserves for US$338.5 million, equivalent to an increase of US$332.7 million in Reserve Assets of the Banco de Guatemala; result that was determined by a surplus of US$1,596.1 million in the capital account and by a deficit in current account of US$1,862.7 million 2, which gave as a result that the deficit in current account/gdp ratio was at 4.8% (5.2% in 2007). The current account balance was explained by the deficits of goods, services and rent, which rose to US$5,573.9 million, US$369.9 million and US$929.3 million, respectively, as well as the surplus of net current transfers for US$5,010.4 million. 2 The Errors and Ommisions heading is estimated at US$599.3 million. 8

9 The capital account surplus was mainly determined by the increase in direct investment and other investments, associated to the positive expectations derived from macroeconomic stability. Because of current and capital operations of the payments balance, the net international monetary reserves, were at US$4,658.8 million, number higher by US$338.5 million to the observed level to December 31, 2007 (US$4,320.3 million), variation equivalent to US$332.7 million of increase in the Reserve Assets of the Banco de Guatemala. The level of the net international monetary reserves reached its equivalent to 4.4 months of imports of goods (3.6 months in 2007), which indicates that the foreign position of the country in 2008 continues to be favorable. Regarding the exchange rate of the quetzal regarding the US dollar, it registered a nominal depreciation of 2.0%, when going from Q per US$1.00 on December 28, 2007 to Q per US$1.00 on December 30, It is worth highlighting that in 2008, episodes of high volatitily in the variation of the exchange rate were registered, reason why it was necessary for the Banco de Guatemala to participate in the exchange market through the Electronic System of Foreign Currency Negotiation (SINEDI, for its acronym in Spanish), holding purchases for US$237.4 million and sales for US$58.3 million. 3. The fiscal sector Regarding public finance, the fiscal deficit to December 31, 2008, was at Q4,777.4 million, amount higher by Q1,005.8 million to the observed in The behavior of the referred variable is mainly due to greater dynamism in public expense, which registered a relative variation of 8.0%, whereas the total income registered an increase of 5.9%. Therefore, the fiscal deficit/gdp ratio increased by 1.4% in 2007 to 1.6% in On the other hand, the level of tax collection during 2008 gave as a result that the tax burden was at 11.3%. As to Central Government expenses in 2008, these rose to Q40,355.4 million, amount higher by Q2,973.3 million (8.0%) to the registered in Said 9

10 result caused the total Central Government expense, as a portion of the gross domestic product to be at 13.6%, lower to the observed in 2007 (14.3%). As to fiscal deficit financing sources, the net internal financing was positive by Q1,625.6 million. On the other hand, net foreign financing rose by Q849.7 million. It is important to point out that the resources coming from financing allowed closing the fiscal gap and generate a financial surplus of Q2,302.1 million, which increased the availability of the fiscal till by the same amount. Last, regarding public debt, when closing 2008, the balance of the nonfinancial public sector internal debt was of Q26,209.9 million, equivalent to 8.9% of the GDP, amount higher by Q2,018.9 million to the registered in The foreign public debt balance, on the other hand, rose to US$4,382.4 million, equivalent to 11.2% of the GDP. 4. The monetary sector The implementation of the monetary policy in 2008 was consistent with the inflation targeting, that is based on the choice of inflation targeting as the nominal anchor of said policy and is consolidated with a current flexible exchange rate regimen, with the use of indirect monetary control instruments (monetary stabilization operations, giving privilege to market decisions), as well as with the strengthening of the Central Bank actions. It is worth pointing out that for 2008 the Monetary Board determined that as a monetary policy target that inflation would be 5.5% with a tolerance margin of +/- 1.5 percentage points. With the pertaining to inflation, the continuous increase in international oil, corn and wheat prices, in good measure, caused the inflationary rhythm to accelerate 8.39% in January to 14.26% in July. In effect, in the indicated period the increase in the internal price of goods and services associated to said raw materials and supplies, intensified. Notwithstanding, as of August there was evidence of an important reduction in international oil and corn prices, which drops influenced in a reduction in total inflationary rhythm as of August. In December 2008, the inflationary rhythm was at 9.40%, higher by 0.65 percentage points to the 10

11 observed in December 2007 (8.75%). On the other hand, imported inflation, after affecting at a maximum of 5.84 percentage points to total inflation in June 2008, began to drop, influencing December by 0.94 percentage points in total inflationary rhythm. It is worth pointing out that in the presence of supply shocks, the monetary policy can only moderate the inflation expectations of the economic agents and the second round effects of the referred shocks. In the first semester of the year, added to the presence of inflationary pressure associated to the external shocks, inflation expectations were becoming unanchored and the product gap showed evidence of the inflationary pressures due to aggregate demand. For this reason, the Monetary Board decided to increase the monetary policy s leading interest rate in March by 6.50% to 6.75% and in July from 6.75% to 7.25%, in order to moderate the inflation expectations of the economic agents and of counteracting the second round effects of imported inflation. As to the indicative variables of the monetary policy, it was estimated that for the end of 2007 the total payment means (M2) would rise between 8% and 11%, in inter-annual terms, whereas the total banking credit to the private sector, must grow between 14% and 17%. At the end of 2008, the inter-annual growth rate of M2 (that includes national and foreign currency) was at 7.6%, whereas the banking credit to the private sector had an inter-annual growth rate of 11.0%, both are, therefore, below the lower limit of their respective margins. Last, the weighted average asset and liable interest rates of the banking system continued to show stable behavior. In effect, the asset interest rate, weighted average, in national currency was at 13.84% at the end of 2008, value higher by 0.95 percentage points to the registered on the same date the previous year. As to liable interest rates, weighted average, in national currency, they were at 5.47%, higher by 0.56 percentage points to the observed at the end of

12 A. GENERAL PANORAMA II. THE INTERNATIONAL ECONOMY According to the International Monetary Fund (IMF 3 ), in 2008, the world GDP grew to 3.0% (5.2% in 2007). It is worth indicating that the slight global economic deceleration was generated by the deepening financial crisis that was originated in the financial market in the United States and by the following reduction of international commerce. In the same manner, the emerging market economies and those of developing countries affected the reduction of their exports to advanced economies as well as to lower income of foreign capital. The inflationary pressures increased in 2008, even though there was a lower level of economic activity, a reduction in the international price of the majority of raw materials as of the second semester of the year and of the absence of salary increases. In the advanced economies 4, in 2008 inflation was at 3.4%, which is higher to the 2.2 registered the previous year. It is worth indicating that in Japan, after having an inflation of 0.0% in 2007, inflation was 1.4% in As for the United States of America, the inflation rate was at 3.8% (2.9% in 2007) and in the Euro Zone, inflation was at 3.3% (2.1% in 2007). Regarding inflation in the group of countries with emerging market economies and developing economies, these were at 9.3% in 2008, rate higher to the registered the year before (6.4%). It is worth mentioning that the People s Republic of China had an increase in inflation, when going from 4.8% in 2007 to 5.9% in As to India, they had an increase in inflationary rhythm, when located at 8.3% in 2008, higher to the observed the previous year (6.4%). In the emerging market economies in Europe, inflation increased when it was at 8.0% (6.2% in 2007), while in the Community of Independent States an inflationary rhythm of 15.6% was registered, higher to the observed in 2007 (9.7%). 3 Perspectives of World Economy, April and October 2009, IMF. 4 The classification of countries used by the IMF, regarding the groups and regions of countries, is presented in Annex 1 of the present chapter. 12

13 B. ADVANCED ECONOMIES In 2008, the economic growth rates of advanced economies were at 0.6%, lower to that of 2007 (2.7%). In the case of the US economy, it grew at a rhythm of 0.4%, lower to the observed in 2007 (2.1%). The lesser growth of this economy was caused, among other factors, by the contraction of internal credit and the fact that it became very expensive, as well as the reduction of domestic consumption caused by the drop in the trust of the economic agents. Regarding the current account of payments balance of the United States of America, in 2008 this registered a deficit of 4.9% of the GDP, lower to the observed in 2007 (5.2% of the GDP). The mentioned reduction of the mentioned deficit was due to the depreciation of the US dollar in the international markets and by the lower dynamism of this economy in The mentioned situation contrasts the surpluses registered in the oil exporting countries, in the People s Republic of China, Japan and other economies with emerging markets in Asia. In Canada, the growth rate of the GDP reached 0.4%, lower to the registered in 2007 (2.5%). This reduction was influenced by the weakening of foreign demand, especially coming from the United States of America and Asia. In the Euro Zone, the growth rhythm was at 0.7% (2.7% in 2007). The mentioned deceleration of the economic activity was caused by the negative incidence that the global financial crisis had on the financial system of the EuroZone, as well as due to the reduction of the aggregate demand, domestic as well as foreign. In effect, the internal aggregate demand was weakened because of the increase in unemployment and the loss in consumer trust caused by the uncertainty generated by the duration of the global financial crisis, as well as foreign demand being affected by the marked deceleration of global economy. In Germany a reduction in the economic growth rhythm was observed, when the GDP went from 2.6% in 2007 to 1.2% in This behavior was due to the fall of exports and by the negative effects derived from the world financial crisis. In the United Kingdom, the GDP grew 0.7% in 2008, percentage lower to the registered in 2007 (2.6%). Said behavior was influenced by the negative incidence 13

14 of the global financial crisis on domestic credit conditions, as well as consumer reduction, due to the uncertainty on the duration of the world financial crisis. In Japan, the GDP registered negative growth of 0.7% in 2008, rate lower to the observed in 2007 (2.3%). The drop in economic activity was caused by the reduction not only of domestic investment but also of the manufacturing exports. CHART 1 ADVANCED ECONOMIES GROWTH OF THE REAL GDP YEARS (In percentages) Country TOTAL United States of America Canada Euro Zone Germany France Italy Spain United Kingdom Japan Other countries a/ a/ Korea; Australia; Taiwan; Sweden, Switzerland Special Administrative Region ofhong Kong of the People s Republic of China; Czech Republic, Norway; Singapore; Denmark; Israel; New Zeland, and Iceland SOURCE: Perspectives of World Economy; April and October, IMF. The advanced economies registered an inflation of 3.4% in 2008, lower to that of 2007 (2.2%). In the United States of America, the inflation rate was at 3.8% (2.9% in 2007). In Canada, a slight rise in inflationary rhythm was seen, when going from 2.1% in 2007 to 2.4% in In Japan, the inflation was 1.4%, 14

15 whereas in 2007 it was at zero. In the Euro Zone, inflation saw a slight increase when going from 2.1% in 2007 to 3.3% in The countries that registered the lowest inflation rates in 2008 were: Japan 1.4%, Switzerland 2.4%, Canada 2.4%, Portugal 2.7%; and Germany 2.8% (0.0%, 0.7%, 2.1%, 2.4% and 2.3% in 2007, in that order.) ADVANCED ECONOMIES INFLATION YEARS (In percentages) CHART 2 COUNTRY TOTAL United States of America Canada Euro Zone Germany France Italy Spain United Kingdom Japan Other countries a/ a/ Korea; Australia; Taiwan; Sweden; Switzerland; Special Administrative Region of Hong Kong from the People s Republic of China; Czech Republic; Norway, Singapore, Denmark, Israel; New Zealand; and Iceland. SOURCE: Perspectives of World Economy; April and October 2009, IMF.. In the advanced economies, the unemployment rate increased in 2008, when at 5.8% (5.4% in 2007). In this group of economies, the United Sates of America, Japan, Canada, the Euro Zone and the United Kingdom, experienced rates of unemployment of 5.8%, 4.0%, 6.2%, 7.6% and 5.5%, respectively (4.6%, 3.8%, 6.0%, 7.5% and 5.4% in 2007, in that order). 15

16 CHART 3 ADVANCED ECONOMIES UNEMPLOYMENT YEARS (In percentages) COUNTRIES TOTAL United States of America Canada Euro Zone Germany France Italy Spain United Kingdom Japan SOURCE: Perspectives of World Economy, April and October IMF. In the United States of America, to counteract the weakening economic activity, the Federal Reserve reduced the Federal Funds rate to close to zero. However, the adverse conditions in the credit market limited the efectiveness of the cutbacks of the monetary policy interest rate, so during the second semester the US Central Bank, given the international financial crisis, decided to implement unconventional measures to stimulate credit flow and promote economic reactivation. On the other hand, the Bank of England, the European Central Bank, and the Bank of Japan implemented expansive monetary policies to stimulate economic activity. In the main international exchange markets, in 2008 the US dollar experienced an appreciation regarding the following currencies: Sterling Pound, 38.3%; Euro, 7.8%; and, the Canadian dollar 23.0%; while it depreciated before the Yen 17.1%. The US dollar was strengthened before the main Latin American currencies. It is worth indicating that, notwithstanding the financial crisis that 16

17 affected the US economy, the dollar continued to be used as a reserve currency, so, in 2008, the majority of investments were made in financial instruments made in that currency. AVERAGE EXCHANGE RATES OF SELECTED CURRENCIES REGARDING THE US DOLLAR DECEMBER DECEMBER 2008 (Monetary units per US dollar) CHART 4 MONTH YEN STERLING CANADIAN EURO POUND DOLLAR December January February March April May June July August September October November December SOURCE: Bloomberg informational services. As to the volume of world commerce of goods and services, these had a reduction in 2008, when registering a growth rate of 3.0%, lower to the registered in 2007 (7.3%), behavior that is mainly explained by the deterioration of the world economy. The advanced economies group presented a reduction of its exports, which grew 1.9%, percentage lower to the observed in 2007 (6.3%). The exports of the emerging market economies and developing countries also had less dynamism, when located at 4.6%, lower to the registered in 2007 (9.8%). As to the imports of advanced economies, these grew 0.5%, percentage lower to the observed in 2007 (4.7%). In the same way, the growth rate of imports of other economies with emerging markets and developing countries was of 9.4%, percentage lower to the registered in 2007 (13.8%). Concerning the exchange rates, in the advanced economies, these registered a drop in 2008, when there is evidence of a relative variation of -1.8% (0.3% in 17

18 2007), result that is explained by the increase in the prices of some imported foods and raw materials. On the other hand, other emerging market economies and developing countries experienced an increase of their exchange terms, when registering a relative variation of 4.1% (0.7% in 2007), due to the increase in the international prices of its main export products. WORLD COMMERCE OF GOODS AND SERVICES VOLUME AND TERMS OF EXCHANGE YEARS (Percentage variations) CHART 5 CONCEPT TOTAL VOLUME Exports Advanced economies Other emerging market Economies and developing countries Imports Advanced economies Other emerging market economies And developing countries TERMS OF EXCHANGE Advanced economies Other emerging market economies And developing countries SOURCE: Perspectives of World Economy, April and October, 2009, IMF.. Regarding the foreign sector, the advanced economies, as a whole, increased their deficit in the payments balance of the current account, which was at 1.3% of the GDP, amount higher to the observed in 2007 (0.9% of the GDP). This result was mainly influenced by the behavior of the current account payments balance of the Euro Zone, since contrary to the surplus of 0.3% of the GDP in 2007; in 2008, there was a deficit of 0.7% of the GDP. The payments balance current account of Japan experienced a reduction of its surplus, when going from 18

19 4.8% of the GDP in 2007 to 3.2% of the GDP in On the contrary of the mentioned economies, in the United States of America observed a reduction of said deficit, which was at 4.9% of the GDP, lower to the registered in 2007 (5.2% of the GDP). ADVANCED ECONOMIES BALANCE IN CURRENT ACCOUNT OF THE PAYMENTS BALANCE AS A PERCENTAGE OF THE GDP YEARS CHART 6 COUNTRY TOTAL United States of America Canada Euro Zone Germany France Italy Spain United Kingdom Japan SOURCE: Perspectives of World Economy, April and October 2009, IMF In 2008, the advanced economies, at an aggregate level, presented a fiscal deficit of 4.6% of the GDP, higher percentage to the registered in 2007 (2.2%). In this group of economies, the United States of America and Japan registered the biggest fiscal deficits, which were at 5.9% and 5.8%, (2.8% and 2.5% in 2007, in that order). In the United Kingdom, the fiscal deficit increased to 5.1% of the GDP (2.6% in 2007). The increase of the fiscal deficit in the indicated economies is mainly associated to the reduction of the income tax and to the implentation of anticyclical policies because of the world economic crisis. 19

20 In the Euro Zone, efforts were made to strengthen the economic activity through the fiscal policy, so the aggregate fiscal deficit of that region was at 1.8% of the GDP (0.6% of the GDP in 2007). In Italy, the fiscal deficit was at 2.7% of the GDP, whereas in France, it was at 3.4% of the GDP (2.7% in 2007) and in Germany, it was reduced to 0.5% of the GDP in 2007 to 0.1% of the GDP in C. OTHER ECONOMIES WITH EMERGING MARKETS AND DEVELOPING COUNTRIES According to the IMF, the economic activities of other economies with emerging markets and developing countries shrunk, when going from 8.3% in 2007 to 6.0% in It is worth indicating that in the case of oil exporting countries, the growth rate in 2008 was of 5.4% (7.4% in 2007), while in the countries that do not export oil, the economic growth was of 6.1% in 2008, lower to that of 2007 (8.5%). It is important to indicate that among the economies that make up this group of countries, those in Africa, as a whole, reached a GDP growth of 5.2% in 2008, percentage lower to that observed in 2007 (6.3%). Said behavior was mainly influenced by the reduction of volume and the price of exports, due to a drop in foreign investment, real as well as portfolio, as well as a significant shrinkage of income due to family remittances and adverse conditions for obtaining international credit. The Sub-Saharan economies jointly registered an economic growth of 5.5%, lower rate to that experienced in 2007 (7.0%). Asia s emerging economies showed an increase of 6.7%, lower to the registered in 2007 (9.8%). In this set of countries, we can highlight the economic expansion of the People s Republic of China and India. Regarding the People s Republic of China, in 2008 it registered a growth rate of 9.0% (13.0% in 2007), due to its expansive macroeconomic policies that strengthened consumption and investment in infrastructure. In the case of India, economic growth was of 7.3% (9.4% in 2007), as a result of the strength of domestic demand through monetary and fiscal policies. On the other hand, Asia s developing countries showed a growth of 7.6% in 2008, lower to the registered the previous year (10.6%). 20

21 The Middle East registered economic growth of 5.4% in 2008 (6.2% in 2007). This reduction in the economic dynamism of this region was caused by the drop in the international price of crude oil, due to the adverse conditions in foreign credit, due to the reduction in family remittances and by the lower income of foreign capital. In the Western Hemisphere, the GDP showed an economic growth of 4.2% in 2008 (5.7% in 2007). This lower dynamism was influenced by the reduction in exports, especially toward the United States of America, the main commercial associate of the region. Added to this, these economies were affected by the income reduction of exports, especially toward the United States of America, main commercial partner of the region. These economies were also affected by the reduction of foreign currency income from tourism and due to less flow of family remittances, as well as the increase of the cost of foreign credit and lower capital income. 21

22 OTHER ECONOMIES WITH EMERGING MARKETS AND DEVELOPING COUNTRIES VARIATION OF THE REAL GDP YEARS (In percentages) CONCEPT TOTAL Oil exporters Non-oil exporters BY REGIONS Africa Emerging countries in Asia Developing countries in Asia Middle East Western Hemisphere SOURCE: Perspectives of World Economy, April and October, IMF. CHART According to the data from the Comisión Económica para América Latina y el Caribe (CEPAL 5 ) [Economic Commision for Latin America and the Caribbean], Latin America and the Caribbean registered a growth of 4.6%, as in 2008, lower to the observed in 2007 of 5.7%. The economic shrinkage of the region was caused by the international crisis. In effect, the world recession caused a reduction in the flow of family remittances, which weakened the aggregate internal demand. The economy was also affected by a reduction of net direct foreign investment, which went from US$84.6 billion in 2007 to US$81.7 billion in It is worth stating that the economic growth of the region sustained positive evolution in the South American economies, particularly Uruguay 11.5%, Peru 9.4%, Argentina 6.8% and Brazil 5.9% (7.4%, 8.9%, 8.7% and 5.7%, in the same order, in 2007). On the other hand, the Caribbean economies, as a whole, showed a growth rate of 2.4% (3.8% in 2007), while those in Central America registered growth of 3.3% (5.6% in 2007) and Mexico, 1.8% (3.2% in 2007). 5 Preliminary Balance of the Latin American and Caribbean Economies CEPAL. 22

23 In monetary policy matters, during the first semester of 2008, the majority of central banks increased their policy rate to minimize the second round effects generated by the increase of food and fuel prices in international markets. However, in the second semester of the year, the restrictions on international credit and the uncertainty caused by the world crisis caused the Central Banks to increase the liquidty of their banking systems in order to facilitate the operation of the internal credit market. Regarding public finance, the governments were able to keep discipline, although there was an increase in current public expense and investment, so the fiscal deficit in the region was at 0.3% of the GDP in 2008 (surplus of 0.4% of the GDP in 2007). It is worth indicating that the economic policy was oriented toward containing the negative effects of global financing. 23

24 CHART 9 LATIN AMERICA AND THE CARIBBEAN VARIATION OF THE REAL GDP YEARS (In percentages, based on the value of prices from 2000) COUNTRY a/ REGIONAL Antigua and Barbuda Argentina Bahamas, The Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Cuba Dominica Ecuador El Salvador Granada Guatemala b/ Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Dominican Republic Saint Kitts and Nevis Saint Vicent and The Grenadines Santa Lucia Surinam Trinidad and Tobago Uruguay Bolivarian Republic of Venezuela a/ Preliminary numbers. b/ According to the Banco de Guatemala, the growth rates are 6.3% and 3.3%, in the same order. SOURCE: Preliminary Balance of Latin American and Caribbean Economies, CEPAL. 24

25 CHART 10 LATIN AMERICA AND THE CARIBBEAN GDP PER INHABITANT YEARS (Annual variation rates) COUNTRY a/ REGIONAL Antigua and Barbuda Argentina Bahamas, The Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Cuba Dominica Ecuador El Salvador Granada Guatemala b/ Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Dominican Republic Saint Kitts and Nevis San Vicent and The Grenadines Santa Lucia Surinam Trinidad and Tobago Uruguay Bolivarian Republic of Venezuela

26 According to the IMF, in 2008 the inflation rate of the set of countries that include the other economies with emerging markets and developing countries increased by regarding the previous year, when at 9.3% (6.4% in 2007). In Africa, the inflation was of 10.3% (6.0% in 2007). In the Sub-Sahara, it registered an inflation rate of 11.9%, percentage higher to that observed in 2007 (6.8%). In the developing countries of Asia, inflation increased moderately, when going form 5.4% in 2007 to 7.5% in In the People s Republic of China, the inflation was at 5.9% (4.8% in 2007), while in India inflation was of 8.3% in 2008 (6.4% in 2007). Regarding the Western Hemisphere, inflation registered a tendency to rise, at 7.9% in 2008 (5.4% in 2007). The main economies in this region registered the highest inflation rates in 2008, which were Venezuela 30.4%, Chile 8.7%, Argentina 8.6%, Colombia 7.0% and Brazil 5.7% (18.7%, 4.4%, 8.8%, 5.5% y 3.6% in 2007, in that order). The Middle East region registered inflation of 15.0%, higher to the observed in 2007 (11.2%). 26

27 CHART 11 WESTERN HEMISPHERE VARIATION OF PRICES YEARS (Annual Averages) Country REGIONAL Antigua and Barbuda Argentina Bahamas, The Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Dominica Ecuador El Salvador Granada Guatemala a/ Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Dominican Republic Saint Kitts and Nevis Santa Lucia San Vicente and The Grenadines Surinam Trinidad and Tobago Uruguay Bolivarian Republic of Venezuela a/ According to the Banco de Guatemala the inflationary rhythm was of 8.75 and 9.4%, in that order. SOURCE: Perspectives of World Economy. April and October IMF. 27

28 Regarding the financial conditions of the economies with emerging markets and developing countries, the net private capital flow showed a drop from US$696.5 billion in 2007 to US$129.5 billion in According to the IMF, such flows dropped in Africa, Central Europe and the East, as well as the Western Hemisphere. In the Middle East and in the Community of Independent States, a net capital outflow was registered. In effect, in 2008 the net private capital flow for Africa was at US$28.5 billion (US$30.0 billion in 2007), for the economies of Central and Eastern Europe, observing a net flow of private financial resources of US$154.7 billion (US$185.5 billion in 2007) and for the group of countries that make up the Western Hemisphere the net private capital income was at US$67.0 billion (US$112.2 billion in 2007). In the Middle East, negative capital net flow was of US$58.9 billion, that contrasts the surplus of US$43.3 billion in 2007, while in the Community of Independent States, after a suprlus of US$124.9 billion 2007, registered a flow of private net capital of US$97.4 billion, in 2008). Regarding the balance of the current payments balance account of the economies with emerging markets and developing countries, in 2008 it showed a surplus of US$724.6 billion, significantly higher to the registered in 2007 (US$664.5 billion). This result was influenced by the positive balances in developing countries of Asia of US$381.5 billion; in the Middle East it was of US$42.8 billion; in the Community of Independent States of US$48.0 billion. According to CEPAL, in 2008, the exports from Latin America increased 18.2% (1.9% in terms of volume and 16.1% in terms of unit price). This growth rate reflected a greater dynamism regarding 2007, when exports grew 12.6% (3.3% in terms of volume and 9.2% in terms of unit price). On the other hand, imports from the region also reflected an increase in 2008, when registering 22.8% (10.6% in terms of volume and 11.0% in terms of unit price), while in 2007 they increased 19.2% (11.8 % in terms of volume and 6.5% in terms of unit price). It is worth pointing out that, although there was less world economic growth, this region was able to keep commercial dynamism sustained by an increase of 4.6% of the exchange terms. 28

29 Regarding the balance of goods, in 2008, for the seventh consecutive year, it registered a positive balance, which was of US$44.6 billion, equivalent to 1.4% of the regional GDP, though lower than the surplus of US$64.4 billion in 2007 (2.0% of the GDP). On the other hand, the current account of the region s payment balance was a deficit of US$30.4 billion, (0.6% of the GDP), surplus of US$14.3 billion in 2007, and equivalent to 0.7% of the GDP). The countries of the Community of Independent States in 2008 registered an economic growth of 5.5%, which implies a deceleration regarding 2007 (8.6%). This behavior is mainly explained by the reduction of export demand, by the adverse conditions of international credit and by a drop in the international prices of raw materials, especially those that are employed in the generation of energy. Last, the countries of Central and Eastern Europe jointly showed an economic growth of 3.0% in 2008, lower than 5.5% of the previous year. Said behavior was influenced by the reduction of its exports and by the lower income of capital. 29

30 CENTRAL AND EASTERN EUROPEAN COUNTRIES COMMUNITY OF INDEPENDENT STATES VARIATION OF THE REAL GDP YEARS (In percentages) CHART 12 COUNTRY Central and East Europe Albania Bosnia and Herzegovina Bulgaria Croatia Estonia Hungary Latvia Lithuania Macedonia, former Yugoslav Republic Poland Republic of Montenegro Romania Serbia Turkey Community of Independent States Armenia Azerbaijan Bielorrusia Georgia Kazakhstan Moldovia Mongolia Republic of Kirgistan Russia Tajikistan Turkmenistan Ukraine Uzbekistan SOURCE: Perspectives of World Economy. April and October, IMF. 30

31 ANNEX CLASSIFICATION OF COUNTRIES According to the report on the Perspectives of World Economy by the International Monetary Fund (IMF), October 2009, the countries are classified in two main groups: a) advanced economies and, b) other economies with emerging markets and developing countries. ADVANCED ECONOMIES BY SUB-GROUPS OF COUNTRIES Main Other Economies from Asia Advanced Advanced European Union Euro Zone Recently Economies Economies Industrialized Germany Australia Germany Germany Korea Canada Korea Austria Austria Hong Kong, SAR of a/ United States Denmark Belgium Belgium Singapore France Hong Kong, SAR of a/ Bulgaria Cyprus Taiwan Italy Iceland Cyprus Slovenia Japan Israel Denmark Spain United Kingdom Norway Slovenia Finland New Zealand Spain France Czech Republic Estonia Greece Singapore Finland Ireland Sweden France Italy Switzerland Greece Luxembourg Taiwan Hungary Malta Ireland The Netherlands Italy Portugal Latvia Slovak Republic Lithuania Luxembourg Malta The Netherlands Poland Portugal United Kingdom Czech Republic Slovak Republic Romania Sweden a/ On July 1, 1997, the People s Republic of China recovered its sovereignty overhong Kong, which made it the Special Administrative Region (SAR) of Hong Kong of the People s Republic of China. SOURCE: Perspectives of World Economy. October, 2009, IMF. 31

32 OTHER EMERGING MARKET ECONOMIES AND DEVELOPING COUNTRIES PER REGIONS Developing countries Developing countries Middle East Western Hemisphere of Asia of Africa Afghanistan Saudia Arabia Antigua and Barbuda Angola Bangladesh Bahrein Argentina Algeirs Bhutan Egypt Bahamas, The Benin Brunei United Arab Emirates Barbados Botswana Cambodia Iraq Belize Burkina Faso Fiji Iran Bolivia Burundi Philippines Jordan Brazil Cape Verde India Kuwait Chile Cameroon Indonesia Lebanon Colombia Chad Solomon Islands Lybia Costa Rica Comoros Kiribati Oman Dominica Ivory Coast Malaysia Qatar Ecuador Djibouti Maldives Syrian Arab Republic El Salvador Eritrea Myanmar Republic of Yemen Granada Ethiopia Nepal Guatemala Gabon Pakistan Guyana Gambia Papua New Guinea Haití Ghana Lao People s Dem. Republic Honduras Guinea People s Republic of China Jamaica Guinea-Bissau Samoa Mexico Equatorial Guinea Sri Lanka Nicaragua Kenya Thailand Panama Lesotho Timor Paraguay Lyberia Tonga Peru Madagascar Vanuatu Dominican Republic Malawi Vietnam Saint Kitts and Nevis Malí San Vicente and The Granadines Morrocco Community of Independent Santa Lucia Mauricio Central and Eastern Europe States Surinam Mauritania Albania Armenia Trinidad and Tobago Mozambique Bosnia and Herzegovina Azerbaijan Uruguay Namibia Bulgaria Bielorrusia Bolivarian Rep. of Venezuela Niger Croatia Georgia Nigeria Estonia Kazakhstan Central African Republic Hungary Moldovia Dem.Rep. of Congo Latvia Mongolia Republic of Congo Lithuania Republic of Kirgistan Rwanda Macedonia, ex Yugoslav Republic of Russia Senegal Republic of Montenegro Tajikistan Seychelles Poland Turkmenistan Sao Tomé and Príncipe Romania Ukraine Sierra Leone Serbia Uzbekistan South Africa Turkey SOURCE: Perspectives of World Economy. October 2009, IMF. Sudan Swaziland Tanzania Togo Tunisisa Uganda Zambia Zimbabwe 32

33 III. NATIONAL ECONOMIC ACTIVITY A. GENERAL ASPECTS The dynamism that had been registered in the national economic activity since 2004 reverted in In effect, the economic growth, measured by the Gross Domestic Product (GDP) in real terms 6, registered a growth rate of 3.3%, lower by 3.0 percentage points to the registered in 2007 (6.3%), result mainly influenced by external origin factors, due to the economic deceleration observed in the majority of countries in the world, caused by the global financial crisis, which influenced the expectations of economic agents, and private investment levels. It is worth stating that said rate is higher for the fifth consecutive year to the population growth rate (2.5%) 7, as is seen in the following graph. Graph 1 Real Gross Domestic Product (Base 2001) Variation Rates Years P/Preliminary In the external order, the behavior of the registered national economic activity, was based on a less favorable environment, due to world economic deceleration, particularly in the United States of America and the main commercial partners of Guatemala (Central America, Mexico and the Euro Zone). On the other 6 7 Calculations made based on the methodology contained in the 4th Revision of the National Accounts Systems Manual 1993 (Revisión 4 del Manual del Sistema de Cuentas Nacionales 1993 (SCN93), base year Projection made by the National Statistics Institute (INE, for its acronym in Spanish), based on the XI National Population Census

34 hand, it was based on the presence of supply shocks, because of the increase of international oil prices and derivatives, of corn and wheat. Regarding the domestic order, macroeconomic stability as a result of the application of disciplined monetary and fiscal policies was kept, as well as the solidity of the main macroeconomic foundations of the country, which allowed counteracting the negative effects of the world economic crisis. B. GROSS DOMESTIC PRODUCT MEASURED BY THE EXPENDITURE DESTINATION In 2008, the majority of variables that make up the GDP per expenditure destination, in real terms, registered negative growth rates or less dynamic than those observed in 2007, except the general government consumption expense, which showed a more dynamic behavior. Regarding domestic demand, made up of consumption, investment and variation of stock, it showed a growth of 0.8%, lower than the observed in 2007 (6.0%). Said behavior was mainly explained by the drop of 6.2% in making up fixed gross capital (5.0% growth in 2007), as well as by the deceleration in private consumption. In effect, final consumption of homes and non-for-profit institutions that serve homes, registered a growth rate of 4.4%, lower to that observed the year before (5.4%), associated to an increase in the prices of final consumer goods and the deceleration in the income of family remittances, when going from 14.4% in 2007 to 4.5% in According to the International Organization for Migration (IOM) 8, of the income from family remittances, families use an average of 48.0% for consumer expenses. Regarding the expense of general government consumption, that includes salaries and procurement of goods and services; it registered a growth of 11.3%, in 2008, higher to the observed in 2007 (8.3%), mainly, as a result of the increase in central government spending in the purchase of goods and services. 8 International Organization for Migration (IOM), Survey on Remittances and the Environment