An economy without productive transformation

• Honduras, along with El Salvador and Nicaragua, remains one of the smallest economies in Central America (Figure 1).
• The country's economic growth, relative to others in the region (Table 1), has not been enough to close the GDP gap — a gap that has grown, and continues to grow, especially with the Dominican Republic, Guatemala, and Panama (Figure 2).
• In 2024, Gross Domestic Product (GDP) reached approximately USD 37 billion, while that of Panama, Guatemala, the Dominican Republic, and Costa Rica were each nearly three times larger (Figure 1).

• GDP per capitaFootnote 3^[3] grew at an average annual rate of just 1.6% (Table 2), rising from approximately USD4,700 in 2004 to USD6,700 in 2024 (Figure 3).Footnote 4^[4]
• Honduras recorded the lowest GDP per capita growth, widening the economic gap further relative to its Central American peers (Figure 3).

• Honduras has one of the lowest annual labor productivityFootnote 6^[6] growth rates in the region, averaging just 1.2% per year over the past 20 years (Figure 4).
• Honduras and Nicaragua are the least productive countries in Central America across the three main economic sectors — agriculture, industry, and services (Figures 5, 6, and 7).

• Agriculture and services recorded productivity gains, with annual growth rates of 2.4% and 0.7% respectively. Industry, by contrast, declined, falling -0.3% per year in productivity (Figures 8 and 9).Footnote 7^[7]
• Agriculture — historically the largest employer — lost more than 250,000 jobs over the past decadeFootnote 8^[8]; its productivity gains may therefore reflect falling employment rather than technological progress in the sector.
• Services is the only sector that increased its share in the economy, rising 12 percentage points, while agriculture and industry fell by roughly 3 and 9 points, respectively (Figure 10).

• The financial intermediation sector increased its share of GDP between 2003 and 2023: it rose from 4.9% to 6.4% of GDP (Figure 11).
• Over the past five years, labor productivity in this sector grew exponentially, outpacing all other sectors (Figure 12).
• Without financial intermediation, the country's labor productivity in 2023 would be approximately $22,200 — nearly 25% below the national figure ($29,100).Footnote 9^[9]

• Although agriculture and commerce together account for close to half of total employment, they represent only one quarter of GDP (Figure 13).
• Financial intermediation — the country's most productive sector — employs just 1% of workers, revealing a disconnect between job creation and value added (Figure 13).

Economic growth has been slow and limited, driven largely by persistently low labor productivity across all sectors.

This raises questions for future Infobytes and research:

• What factors constrain productivity growth in Honduras?
• Should we try to raise productivity across all sectors, including the least productive ones? How?
• What has driven growth in the financial sector and what has been its impact on other sectors?
• What might explain the decline in agricultural employment?

What other questions does this Infobyte raise for you?