Guatemala is an upper-middle-income country and the largest economy in Central America, by population and economic activity. In 2021, its population surpassed 17 million and its total and per capita gross domestic product (GDP) were US$86 billion and US$5,025, respectively. The country has experienced a stable pace of growth (3.5 percent on average over the 2010-19 period), underpinned by prudent fiscal and monetary management and macroeconomic stance.
Following a large rebound in 2021 (8 percent), Guatemala’s economy grew by an estimated 4 percent in 2022, driven by private consumption, investment, and public consumption. GDP growth is expected to slow down to 3.2 percent in 2023.
Still, the country faces major development challenges: Guatemala’s poverty and inequality rates are among the highest in the Latin American and Caribbean region (LAC), driven by the existence of a large and underserved population, mostly rural and Indigenous and employed in the informal sector.
A small and ineffective state, lack of education and job opportunities, and frequent natural disasters are some of the key factors that have contributed to poverty in Guatemala. Simulations for 2019 suggest that about 54 percent of the population was below the poverty line, only slightly below the 55.4 percent in 2014, the last official poverty estimate.
The significant increase in remittances and sustained economic growth observed between 2014 and 2019 contributed to poverty reduction, but a decline in labor income (across all education levels) curbed progress. During this period, inequality is estimated to have increased from a Gini of 0.483 to 0.541, remaining high by global standards.
The COVID-19 crisis raised the poverty incidence to 59 percent in 2020. The rise would have been larger had it not been for the government’s expedited response in expanding the social safety net to mitigate the pandemic’s social and economic consequences. Poverty is expected to decrease to 55.2 percent in 2023 and 54.2 percent in 2024, while inequality to remain high.
Guatemala’s Human Capital Index (HCI) score rose from 0.44 to 0.46 between 2010 and 2018, yet the country’s overall HCI score remains far below the LAC average. An HCI score of 0.46 indicates that a child born in Guatemala in 2018 would be expected to reach only 46 percent of what its lifetime productivity would have been had it enjoyed a complete education and full health. Human capital indicators are low among Indigenous peoples and Afro-descendants, who represented around 45 percent of the population as of 2018.
Guatemala’s under five child malnutrition rate (at 47 percent) is among the ten highest worldwide. Despite recent government efforts to prioritize early child interventions, the stunting rate remain particularly high and could worsen in a context of food insecurity and high food prices.
Disasters have reversed hard-won gains in human capital, destroyed infrastructure, reduced agricultural output, intensified food insecurity, spread diseases, and disrupted the provision of essential services. Recent estimates suggests that the Eta and Iota hurricanes in 2020 caused infrastructure-related losses of close to 0.56 percent of GDP.
Guatemala nonetheless has enormous potential to generate growth and prosperity for its entire population. The country is rich in natural resources, is one of the world’s megadiverse countries, possesses a civilization-spanning culture as well as a diversified economy and its proximity to the United States provides significant tourism and nearshoring opportunities.
Tapping this potential wealth will require Guatemala to effectively provide services, such as health, education, disaster risk management and infrastructure, while gradually broadening the sources of fiscal revenue. Steadily building the country’s governance, social and environmental credentials will also help the country attract increasing foreign direct investment and more effectively access global capital markets.
Last Updated: Apr 04, 2023