Costa Rica: GDP growth slows in Q3 on lower investment
December 22, 2017
The economy lost steam in Q3 as fixed investment contracted sharply amid higher interest rates and increased uncertainty. According to data released by the Central Bank on 22 December, GDP growth slowed in Q3 to 2.9% compared to the same quarter last year (Q2: +4.2% year-on-year; previously reported: +4.5% yoy).
On the domestic front, consumption dynamics were largely unchanged from the previous quarter: Private consumption growth remained at 3.2% compared to the same quarter last year, matching Q2’s revised growth rate (previously reported: +1.9% yoy). Government consumption growth was also unchanged in Q3, remaining at Q2’s revised 2.7% (previously reported: +2.5% yoy). However, undermining the domestic economy’s performance in the third quarter was fixed investment, which fell by 7.4%, far steeper than Q2’s revised 0.9% fall (previously reported: -1.6% yoy). A sharp rise in interest rates leading up to the quarter and uncertainty generated by fiscal difficulties in Costa Rica likely dampened appetites for investment.
A comparatively brighter spot for Costa Rica’s economy was the external sector. Exports of goods and services grew from the same quarter last year by 6.6% in Q3 (Q2: +8.1% yoy; previously reported +8.7% yoy). Imports, meanwhile, grew by a more moderate 2.3% in the quarter, down from Q2’s revised growth of 3.4% (previously reported: +3.5% yoy). Consequently, the external sector contributed 1.4 percentage points to economic growth in Q3, slightly less than Q2’s revised 1.5 percentage-point contribution (previously reported: +1.6 percentage points).
Costa Rica is approaching what will be the first of many elections in Latin America in 2018. On 4 February, Costa Ricans will vote in presidential and legislative elections. As the Legislative Assembly is all but closed in the run-up to the elections, important work on tackling the country’s fiscal woes will have to wait until the political landscape is settled. This will likely hinder investor confidence in the economy in the near term.
Costa Rica GDP Forecast
The economy is expected to perform resiliently going forward on the back of healthy fixed investment and a supportive external sector. The precarious fiscal situation, however, will continue to cloud the outlook. The Central Bank expects the economy to record full-year GDP growth of 4.1% in 2018. FocusEconomics Consensus Forecast panelists expect GDP growth of 3.7% this year, which is down 0.1 percentage points from last month’s projection. Next year, our panelists see GDP growth at 3.8%.
Author: Edward Gardner, Economist