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The Honduran economy is third in the region with the solid growth prospects

by | Nov 12, 2023

The economies of the Dominican Republic, Panama, and Honduras lead the growth rankings this year and in 2024, according to a recent report by Moody’s Analytics that examines the economic outlook for Latin America.

For 2023 and 2024, the outlook for real GDP growth rates for the Dominican Republic will be 4.3 and 4.9; Panama, 4.4 and 3.7; and Honduras, 3.4 and 3.6, respectively.

These projections coincide with those recently issued by the Central Bank of Honduras (BCH) within the framework of the review or adjustment of figures of the Monetary Program for the years in question.

Honduran economic growth exceeds the Latin American average

The projected behavior for the Honduran economy is slightly above the Latin American average. According to Moody’s Analytics, the outlook for Central America will be marked by lower growth this year due to a less favorable global environment.

Income from tourism and remittances continues to drive the growth of the Honduran economy as inflation continues to decline. Some countries are already in the target inflation range. Although some central banks have begun to reduce their monetary policy rates, they are expected to remain high, affecting domestic demand.

Regarding remittance flows, it is expected that they will continue to benefit from the strength of the US labor market, but its cooling will prevent anticipated growth. Moody’s regional report states, “The region’s economy will see greater growth in 2024.”

The Honduran economy has the potential to grow more, believes the National Association of Industrialists (ANDI) executive director, Fernando García. However, “the review carried out by the Central Bank is positive. It seems that what we projected at the beginning of the year was very ambitious.”

The projection of 3.0 and 3.5 is more realistic. “We hope this goal is met, but as a country, we should grow at 8 and 10 percent to overcome underdevelopment.” But “legal security is needed, in contracts and stability in legislation,” and of course, we must avoid permanent conflicts between politicians because they weaken the investment climate, he mentioned.

Based on a summary of the Monetary Program, the business leadership considers that the moderation of economic growth of the Honduran economy is consistent with a less favorable international context, characterized by a global slowdown and inflation that remains high.

Behavior of the Honduran Economy

According to the Economic Policy Department of the Honduran Council of Private Enterprise (Cohep), the downward revision of the economic growth in the country would be influenced by a drop in exports, explained by the lower external demand for Goods for Processing (textile garments), particularly from the USA – the leading destination of Honduran textile exports.

Likewise, lower growth in private consumption is expected. This situation will be primarily impacted by a lower flow of family remittances than initially expected in response to the slowdown in US economic activity. In addition, lower income for companies is anticipated due to a decreased dynamism of the main economic activities of the Honduran economy.

Moreover, a lower contribution from public investment is estimated in 2024. However, it would continue to be higher than the previous year’s investment in public works and improvements in road infrastructure and the energy sector.

Steps to take to promote economic growth

A comprehensive and multi-faceted approach is necessary to maximize economic growth in Honduras from a policy perspective. Firstly, addressing political instability is crucial. Implementing policies that promote political stability, continuity, and transparency can instill confidence in investors and create an environment conducive to long-term economic planning. Strengthening institutions to ensure effective governance and combating corruption are paramount, as they contribute to a stable and predictable business climate.

Social development policies should focus on reducing poverty and inequality, enhancing education and healthcare, and empowering the workforce. Investing in human capital will not only improve the standard of living for Honduran citizens. Still, it will also create a skilled and productive labor force, vital for attracting and retaining investments in a globalized economy. Additionally, targeted infrastructure development, including transportation and communication networks, is imperative to facilitate the movement of goods and services, reducing transaction costs and promoting overall economic efficiency.

Diversifying the economy by promoting sectors beyond traditional agriculture is essential for resilience against external shocks affecting the Honduran economy. Encouraging innovation and technology-driven industries can contribute to higher productivity and competitiveness on the global stage. Moreover, given Honduras’ vulnerability to natural disasters, formulating climate-resilient agricultural policies and disaster management strategies is crucial.

Trade policies that foster international partnerships and market access are vital for Honduran economic growth. Negotiating favorable trade agreements and participating in regional economic integration can open up new opportunities for Honduran businesses and enhance export potential. Simultaneously, policies supporting small and medium-sized enterprises (SMEs) can stimulate entrepreneurship and generate employment.

Incentivizing foreign direct investment through clear and consistent regulations, tax incentives, and creating special economic zones in Honduras can attract capital and technology transfer. However, such initiatives should be accompanied by measures to ensure responsible and sustainable business practices.

Overall, a holistic and coordinated policy framework addressing political, social, economic, and environmental dimensions is necessary to maximize the growth of the Honduran economy. The success of these policies requires sustained commitment from both the government and the international community, fostering a collaborative effort to unlock the nation’s economic potential.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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