Paraguay Economic Forecast

After decelerating in Q4, the economy seemingly gathered steam in the first quarter of the year. Growth in the economic activity index accelerated markedly in Q1 compared with Q4, thanks to higher outturns in the agriculture and services sectors. Additionally, external sector data points to stronger domestic and foreign demand; both merchandise imports and exports rebounded in the quarter. In politics, on 30 April, the ruling right-wing Partido Colorado—led by Santiago Peña—won the presidential election by a large margin. Accordingly, risks to political stability are limited. Under Peña, the country is set to maintain economic orthodoxy, a pro-business stance, prudent fiscal policies as well as its allegiance to Taiwan. The Peña administration will begin its five-year tenure on 15 August.

Inflation declined to 5.3% in April (March: 6.4%). The fall was driven by softer price pressures for transportation, and housing and utilities. On the flip side, food inflation ticked up. Meanwhile, on 21 April, the Central Bank maintained its key rate at 8.50%. Inflation is forecast to average around its current level this year, slightly above the Bank’s 4.0% target.