Consumption in Costa Rica

Costa Rica - Consumption

GDP further eases its contraction in Q4

The economy shrank in the final quarter of 2020, albeit at a notably more moderate pace than in the third quarter (Q4: -3.7% year-on-year; Q3: -7.0% yoy), according to rebased national accounts data, with the new base year referring to 2017 prices. Although Q4’s result showed a continued improvement in conditions, it reflected an economy still reeling from the fallout brought on by the pandemic and its associated containment measures. Consequently, GDP contracted 4.5% overall in 2020, swinging from 2019’s 2.2% expansion.

Domestically, household spending spearheaded Q4’s improvement, contracting at a softer pace than in the third quarter (Q4: -3.7% yoy; Q3: -6.5% yoy). A gradually decreasing—albeit still-elevated—unemployment rate (Q4: 20.0%; Q3: 22.0%) likely helped to support private spending in the period. Moreover, government consumption rebounded strongly in the quarter, clocking 4.3% growth (Q3: -0.1% yoy). However, fixed investment contracted at a sharper rate in the final months of the year (Q4: -6.3% yoy; Q3: -0.2% yoy).

Turning to the external sector, exports of goods and services contracted at a milder pace of 8.8% in annual terms in the final quarter, compared to Q3’s 15.0% drop. Similarly, imports of goods and services decreased 7.6%, moderating from Q3’s 11.9% fall and signaling an improvement in domestic demand dynamics.

Moving to the first quarter of 2021, available data suggests that the gradual improvement in economic conditions continued, with economic activity in January contracting at the softest pace since the outbreak of the pandemic. Our panelists expect the economy to have contracted again in Q1, albeit at a notably more moderate pace, and they see GDP returning to growth in Q2. Moreover, the approval of the IMF loan in March, coupled with continued accommodative monetary policy, should further bolster activity in the coming months.

Commenting on Q4’s results and the economic outlook, Pamela Ramos, economist at Oxford Economics, noted:

“Economic restrictions were further relaxed in Q4 due to an improved health situation, which allowed the recovery to advance further. […] We expect […] a partial recovery of 3.5% in 2021. The vaccine rollout should help the recovery, but fiscal consolidation efforts will likely put a cap on the recovery dynamics. We don’t expect Costa Rica to recover its pre-pandemic GDP level until Q2 2022.”

FocusEconomics panelists see the economy expanding 3.1% in 2021, which is unchanged from last month’s projection, and growing 3.4% in 2022.