Economic growth records slowest increase since Q3 2022 in the first quarter

GDP growth moderated to 3.7% year on year in the first quarter, down from 5.0% in the fourth quarter of last year. Q1's reading marked the worst reading since Q3 2022. On a seasonally adjusted quarter-on-quarter basis, economic growth lost momentum, cooling to 0.4% in Q1, compared to the previous period's 1.2% jump. Q1's reading marked the slowest expansion since Q2 2020.

The deceleration was driven by softer growth in private consumption and exports. Private consumption growth fell to 3.9% in Q1, marking the weakest expansion since Q1 2023 (Q4 2023: +5.8% yoy). Public spending, meanwhile, rebounded, growing 0.3% in Q1 (Q4 2023: -0.1% yoy). Additionally, fixed investment also bounced back, growing 0.6% in Q1, contrasting the 0.2% decrease logged in the previous quarter. On the external front, exports of goods and services increased 2.6% on an annual basis in the first quarter, which was below the fourth quarter's 6.4% expansion. Conversely, imports of goods and services growth picked up to 2.6% in Q1 (Q4 2023: +1.2% yoy).

In the coming quarters, the economy should grow at a similar pace to Q1, below 2023’s sharper pace of expansion. Growth of both domestic demand and exports is set to cool, partly due to a high base effect. The pace of monetary easing by the Central Bank of Costa Rica, the country’s security situation, and the strength of the U.S. economy are key factors to track.

Mauricio Monge, economist at Oxford Economics, commented on risks to the outlook: “Downside risks persist, particularly concerning potential supply shocks triggered by heightened political conflicts in the Middle East, which could exacerbate supply chain disruptions. […] Moreover, constrained government spending and rising insecurity levels may fuel increased social discontent”.

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