Central Bank Downgrades Economic Growth Forecast

Central Bank warned of modest economic growth this year, as higher oil prices and inflation take its toll.

Government officials had originally predicted that the economy would grow by 4.2% in 2007, slightly up from the year before. But the Central Bank downgraded its forecasts this week, saying that they expect the economy to grow anywhere from 3.7% to 3.9%.

Inflation, which had been pegged at 7.5%, is now likely to hover around 9% for the year.

“For these rates of growth to lift Nicaragua out of poverty is very difficult, practically impossible,” said Central Bank president, Antenor Rosales.

Rosales blamed the dampened economic outlook on high oil prices, chronic blackouts and slowing foreign investment. The World Bank had also predicted strong growth for Nicaragua, the only Central American country that was likely to see an expansion.

Yet the entire region faces tighter times as problems in the U.S. economy begin to make their way south of the border. The U.S. housing glut and sub-prime mortgage fiasco is causing a drop in real estate sales throughout Central America, although the problems are not as severe here since Canadian and European buyers appear to be picking up part of slack.

Vice-President Jaime Morales, a former banker, painted a slightly more optimistic picture. He said Nicaragua’s economic situation was strong overall, pointing out that reserves of money are at their “highest levels in history” and the nation’s financial system “is solid and stable.”