Costa Rica: Economic growth accelerates in the second quarter
September 28, 2018
The economy grew at the fastest rate in a year in the second quarter of 2018, according to the Central Bank of Costa Rica. In annual terms, economic growth clocked in at 3.6% in Q2, up from the revised 2.7% reading for Q1 (previously reported: +2.5% year-on-year). This was, to a large extent, due to stronger fixed investment growth.
Private consumption increased 2.6% in Q2, a smidgen less than the 2.7% expansion recorded in Q1. Coinciding with this slowdown was an uptick in the unemployment rate to 8.7% from 8.5% a year earlier. Moreover, consumer confidence remained firmly in pessimistic territory throughout the second quarter. Government consumption growth hit 2.8% in Q2, up from 2.7% in Q1. Fixed investment increased 2.3% in Q2—contrasting the decrease of 3.9% recorded in Q1—partly due to a low base effect.
Growth in exports of good and services decelerated to 1.6% in Q2 from 8.3% in Q1. This was because exports of services fell, contrasting the previous quarter’s increase, while external sales of goods increased at a meager pace. Imports of goods and services, meanwhile, increased 3.3% in Q2, contrasting the 2.2% decrease recorded in Q1. The external sector consequently detracted 0.7 percentage points from economic growth in Q2, a significant downward swing from the 3.7 percentage-point contribution in Q1.
Looking ahead, the inauguration of President Carlos Alvarado and the new representatives of the Legislative Assembly in May lifted a cloud of political uncertainty which should benefit the economy. Moreover, the new government and legislators are now acting to reduce the fiscal deficit, which widened to the largest on record last year. A long-awaited landmark bill is currently making its way through the Assembly and could be passed before the end of this year, which should help cut the deficit. The government is also taking measures to make Costa Rica an easier and better place to do business in the long-term, something that opposition lawmakers demanded be done in parallel with fiscal reform. However, public opposition to the landmark fiscal bill has resulted in protests in recent weeks which, along with instability in neighboring Nicaragua, could dent growth prospects in the short term.
Author: Edward Gardner, Economist