Central America Seen Growing 3.3% to 3.9% in 2026

Economy · Central America

Central America should grow between 3.3% and 3.9% in 2026, according to the IMF, even as a Middle East war lifts fuel costs and the growth of money sent home from the United States cools. For US readers, the region matters because its households, central banks and exporters are tied closely to the US dollar, US jobs and US trade and tax policy.

The Growth Picture: Steady, Not Spectacular

The IMF’s April 2026 forecasts put growth for 2026 at 3.9% in Guatemala, 3.8% in Nicaragua and Panama, 3.6% in Costa Rica, and 3.3% in both El Salvador and Honduras. These are steady rates by global standards. They are also below the pace that would close the income gap with the United States quickly.

The IMF’s April outlook was titled “Global Economy in the Shadow of War.” It warned that net energy importers, a group that includes Central America, could see growth reduced if the Middle East conflict continues. Almost every economy in the region buys its fuel abroad.

Central banks are already adjusting. Costa Rica’s central bank cut its 2026 growth forecast to 3.4% in July from 3.5% in April, and it expects 3.5% in 2027. It cited geopolitical tension and US trade policy among the reasons.

Remittances: The Engine That Is Starting to Cool

Money sent home from migrants, mostly in the United States, props up household budgets in the northern part of the region. Guatemala’s central bank, Banguat, reported a record US$25,530.2 million in 2025, up 18.7% on 2024. Honduras received US$12,212 million (up 25.3%) according to its central bank, and El Salvador US$9,987.9 million (up 17.7%) according to its reserve bank.

A jump of that size cannot repeat every year. In 2026 growth is slowing. Honduras received US$7,692.2 million in January to July, 11.2% more than a year earlier. El Salvador received US$6,788.3 million in January to August against US$6,539.2 million a year earlier, a gain of about 3.8%.

Banguat expects remittance growth in Guatemala to slow to about 5% in 2026. Even so, the twelve months to July 2026 brought US$26,484 million, 10.7% more than the previous twelve months. Remittances are therefore still rising, only more slowly.

The dependence is large. Honduras’ central bank data put remittances above 25% of GDP, and El Salvador’s at about 24%. For Nicaragua, the central bank’s 2025 annual report summary gives no remittance total. Outside estimates cited by the outlet Confidencial put it near US$6.2 billion, or about 28% of GDP. Treat that as an estimate, not an official figure.

The US Remittance Tax: A New Cost, Unclear Effect

Since 1 January 2026 the United States charges a 1% excise tax on remittances when the sender pays in cash, by money order, by cashier’s check or with a similar physical instrument. The sender owes the tax and the transfer company collects it. Treasury and the IRS issued proposed rules on 10 April 2026.

The tax is small per transfer: US$2 on a US$200 cash payment. The real question is behaviour. Senders can avoid it by paying from a bank account or card, which pushes migrants towards digital services. We found no official data yet on how many transfers moved or whether total flows changed because of the tax. Our earlier reporting on the tax is here.

Costa Rica, Panama and Nicaragua: Different Engines

The three southern economies rely far less on remittances. Costa Rica’s central bank cut its policy rate by 0.25 percentage points to 3.00% in July 2026, from 3.25%. Headline inflation was negative in the first half of the year, and the bank expects it to average above 2% but below its 3% target. Low inflation gives it room to ease. Weaker external demand and a slowdown in the free-trade-zone sector are the pressure points.

Panama grew 4.4% in 2025 according to national statistics. The Canal drove it: transport output rose 14.5% and Canal toll revenue 22.0%, while Colón Free Zone re-exports fell 10.4%. Panama’s Comptroller reported first-half 2026 growth of 5.5%, with a 6.4% second quarter. Panama has used the US dollar as its currency for more than a century.

Nicaragua’s central bank reports 4.9% growth in 2025 and 2.7% inflation, the lowest in several years, with the exchange rate unchanged. Nicaragua is also the economy with the weakest transparency, so remittance and fiscal data arrive late or not at all.

Nearshoring: Promise and Evidence

Nearshoring means moving production closer to the US market. Central America sells that story, helped by free-trade access through CAFTA-DR, the trade agreement linking the United States with five Central American states and the Dominican Republic. Panama is not a member. Our trade and remittance analysis covers the agreement in detail.

The honest reading is that evidence is mixed. We found no official series that isolates nearshoring investment, and one Costa Rican signal points the other way: the central bank notes weaker external demand. Panama’s gains come mainly from the Canal and services, not from factories moving from Asia.

Risks the Forecasts Understate

First, fuel. Guatemala’s monetary board held its policy rate at 3.50% on 23 September 2026 and warned that a prolonged oil supply shock could keep pushing up domestic fuel prices. August inflation was 3.37%, inside the 4% target range of plus or minus one point.

Second, concentration. A weak US labour market would hit remittances quickly, and migration enforcement can change flows within weeks. Third, climate: the Dry Corridor, a drought-prone belt through Guatemala, Honduras and El Salvador, is exposed to shocks. Our Guatemala growth and TPS report covers the human side. Fourth, governance and data gaps, especially in Nicaragua.

There are stabilisers too. Inflation is low in Costa Rica and Nicaragua, Panama and El Salvador use the US dollar, and central banks have room to cut rates. For a broader view see the Central America hub and our report on Guatemala’s remittance boom.

What It Means for You

If you send money to the region, cash is now taxed at 1% and a bank or card transfer is not. Compare the fee and the exchange rate, not only the tax. If you invest, direct US listings of Central American firms are few, so exposure usually comes through dollar bonds or funds holding regional banks. Check what your fund really owns.

If you travel or do business there, expect higher fuel costs to feed through to transport and food prices. For US trade and migration watchers, the region is a rare case where US policy sets the local economy’s tempo more than local policy does.

What Is Not Known

We do not know how far the 1% US tax will dent flows, because no official data separates its effect from migration fears. We do not know whether remittance growth will settle near 5% or fall further. The IMF will update its figures in October, and the numbers above may change.

Nicaragua’s remittance total is an outside estimate, not an official release. Honduras and El Salvador figures come from central bank data reported by national media.

How fast will Central America grow in 2026?

The IMF’s April 2026 forecasts range from 3.3% for Honduras and El Salvador to 3.9% for Guatemala. Costa Rica’s central bank expects 3.4%.

How much money do migrants send to Central America?

In 2025, Guatemala received US$25.5 billion, Honduras US$12.2 billion and El Salvador US$10.0 billion, according to national central banks. Nicaragua’s total is not officially published in its annual report.

Is the US remittance tax cutting transfers?

No official data yet shows that. The 1% tax applies to cash-funded transfers since 1 January 2026, and flows in 2026 are still higher than a year ago, but growing more slowly.

Which economies depend most on remittances?

Honduras (above 25% of GDP) and El Salvador (about 24%) rely most, based on central bank data. Nicaragua is estimated at about 28%. Costa Rica and Panama rely far less.

Is nearshoring lifting the region?

The evidence is mixed. We found no official series that isolates nearshoring, and Panama’s recent growth comes mainly from the Canal and services.

What should US investors watch?

Central bank rate decisions, inflation reports, remittance data and oil prices. Costa Rica and El Salvador are scheduled to report September inflation on Wednesday 7 October 2026, according to the RT economic calendar.

Sources

• IMF, World Economic Outlook April 2026
• Banco Central de Costa Rica, Informe de Política Monetaria July 2026
• Banco Central de Nicaragua, Informe Anual 2025
• US Treasury and IRS, IR-2026-48 on the remittance transfer tax
• Contraloría General de Panamá, GDP 2025
• Banco de Guatemala (remittances, policy rate)
• Banco Central de Honduras (remittances)
• Banco Central de Reserva de El Salvador (remittances)
• La Hora, Guatemala monetary board 23 September 2026
• RT economic calendar, October 2026

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