Central American Remittance Growth Remains Strong

• Remittance data from across the Central American sub-region continues to show inflows far above historical levels, providing a key source of support for domestic private consumption.
• The bulk of these flows come from the US, where the strength of the labour market has increased the income available to send abroad. This trend first began in mid-2020, when the huge fiscal stimulus (roughly USD5.0trn) passed by the US in response to the Covid-19 pandemic boosted household incomes, even despite the collapse in employment during the period of intense lockdowns.
• This has continued into H222 and through Q322, the latest period for which data is available from all the markets that report remittances, receipts are up 18.2% y-o-y, and 60.3% from the same period in 2019.
• However, Fitch expects that remittance growth has peaked, as the US economy is likely to slow in 2023, hurting the labour market (the company forecasts unemployment to rise from 3.4% to 4.5% by the end-2023) and reducing the disposable income available to remit back to Central America.
• In 2023, the reduction in remittance inflow is a key factor that will impact real GDP growth in Central America with growth anticipated to slow from an estimated 4.3% in 2022 to 2.8% in 2023.

(Source: Fitch Solutions