Costa Rica: Economic growth picks up in Q3 2019
December 23, 2019
In the third quarter of 2019, the economy grew 2.3% compared to the same quarter a year earlier, up from the second quarter’s 0.6% growth reading and representing the fastest expansion in one year.
The third quarter’s acceleration was largely due to faster government consumption growth of 5.5%. This was up from 1.1% in Q2 and boosted by an increase in hiring of public healthcare workers and a low base effect from the same quarter a year earlier, when public sector workers went on strike over proposed fiscal policy reforms. In addition, private consumption growth accelerated slightly to 1.6% in Q3, up from 1.5% in Q2; this was likely supported by a drop in the unemployment rate (Q3: 11.4%; Q2: 11.9%) and despite a decrease in consumer confidence. Meanwhile, fixed investment contracted 5.4% in Q3 after falling 9.3% in Q2, likely due in part to the first decrease in bank lending in nine years amid a slump in business confidence.
Growth in exports of goods and services decelerated to 2.7% in Q3, down from 2.9% in Q2. Imports, meanwhile, increased 2.1% in Q3, contrasting the 2.7% drop in Q2. Overall, the external sector contributed 0.2 percentage points to economic growth in Q3, down from the 2.1 percentage-point contribution in Q2.
Looking ahead, the Central Bank’s rate cutting drive in 2019 should feed into improved bank lending and higher consumer spending in both Q4 2019 and 2020, supporting overall economic growth. Private consumption growth should also benefit in 2020 from an expected decrease in the unemployment rate. In addition, while the approval in November of a relatively tight 2020 budget will constrain public spending, it underlines the cash-strapped government’s commitment to fiscal discipline, which should support business confidence and investment.
Author: Edward Gardner, Economist