Costa Rica: GDP growth accelerates to over 23-year high in Q2, partly on favorable base effect
September 30, 2021
GDP rebounded at the quickest pace in over 23 years in the second quarter of 2021 (Q2: +9.4% yoy; Q1: -2.1% yoy), according to rebased national accounts data, with the new base year referring to 2017 prices. Q2's reading marked the first economic expansion after four consecutive quarters of contraction, but was bolstered by a low base effect.
The second quarter’s upswing was spearheaded by private consumption, which bounced back to growth for the first time in over a year (Q2: +3.4%; Q1: -3.0%), while fixed investment also rebounded, rising 14.4% and sharply contrasting the previous quarter’s 7.6% drop. Conversely, government spending swung into contraction, falling 4.2% (Q1: +7.4% yoy) as government aid programs came to an end amid recovering activity.
Turning to the external sector, growth in exports of goods and services accelerated to 39.7% in Q2 from 9.3% in the prior quarter, marking the quickest rate on record. Similarly, imports of goods and services rose 27.0% in Q2, up from the 0.9% increase logged in Q1 and pointing to a continued recovery in domestic demand.
Moving to the third quarter, high-frequency data shows that the gradual improvement in conditions continued, with growth in economic activity accelerating markedly in July and August—although this was again flattered by a favorable base effect. Our panelists expect the economy to have grown robustly in Q3, albeit at a slightly softer pace.
Regarding the outlook, Gabriel Lozano, chief economist for Central America at JPMorgan, commented:
“Commercial activities have benefited largely from improving conditions in tourism, the strong pace of remittances, and vaccination progress. While there are some concerns related to new Covid-19 variants and on the global economy losing some steam, the strong links to the U.S. economy suggest Costa Rica will sustain a healthy momentum throughout Q3 2021.”