Investment in Costa Rica
Costa Rica - Investment
Economic growth rebounds in Q1 on stronger public and private consumption
In the first quarter of 2019, the economy grew 2.3% compared to the same quarter a year earlier. This represented a marked acceleration from the fourth quarter of 2018, when the economy expanded just 1.4%, which marked the lowest growth rate since Q1 2013.
Private consumption increased 1.9% in Q1, up from 1.5% in Q4, likely on a drop in the unemployment rate to 11.3% from 12.0% in Q4. On the other hand, private spending in Q1 was undoubtedly weighed on by a fall in consumer confidence; consumers in Q1 were the most pessimistic since at least September 2002, according to the University of Costa Rica. Government consumption, for its part, grew 1.5% in Q1, contrasting Q4’s 3.5% decrease. Fixed investment, meanwhile, slumped 0.8% in Q1, due largely to lower private construction investment, contrasting Q4’s 1.7% growth.
Growth in exports of goods and services decelerated to 4.1% in Q1 from 6.2% in Q4. This was due to a sharp slowdown in the exports of goods, while those of services grew at a robust rate. Imports of goods and services, meanwhile, grew 5.1% in Q1, substantially up from Q4’s 1.4% increase and driven by a surge in service imports. Overall, the external sector detracted 0.3 percentage points from economic growth in Q1, contrasting its 1.6 percentage point contribution in Q4.
Turning to the coming quarters, businesses will have greater certainty about the policy environment following the approval of fiscal reforms late last year, which should support fixed investment growth and sustain an economic acceleration. These included swapping the general sales tax for a value-added tax and tightening the rules for government spending increases, all of which fully come into force over this year. In addition, a weak colón following its steep depreciation at the end of last year, coupled with the opening of a new industrial port in Limón in February this year, should stimulate exports. However, continued instability in neighboring Nicaragua and global trade protectionism could undermine export potential ahead.
The Central Bank expects the economy to expand 3.2% in 2019 and 3.0% in 2020. Our panelists, however, are slightly less optimistic and expect growth of 2.8% in 2019, which is unchanged from last month’s projection, and 2.8% again in 2020.
Costa Rica - Investment Data
|Investment (annual variation in %)||-0.3||3.3||3.0||4.8||-3.1|
5 years of economic forecasts for more than 30 economic indicators.
Costa Rica Investment Chart
Source: Costa Rica Central Bank and FocusEconomics calculations.
Costa Rica Facts
|Exchange Rate||576.5||-0.57 %||Sep 04|
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September 18, 2019
At its 18 September monetary policy meeting, the Central Bank of Costa Rica took market analysts by surprise and cut the policy interest rate to 3.75% from 4.00%.
September 11, 2019
Annual economic growth in cyclically-adjusted terms accelerated to 1.5% in July from June’s revised 1.3% (previously reported: +1.5% year-on-year), nevertheless, economic activity remained subdued by historical standards. Although economic growth ticked up in July, partly on strong activity growth in the ICT sector, it was still hampered by a continued decline in activity in the agriculture sector, which is struggling following a prolonged spell of dry weather, partly due to the El Niño effect.
September 9, 2019
On 30 August, the fiscally-strained government of Costa Rica presented to Congress its 2020 budget proposal, which outlines cutting spending by 4.3% compared to this year.
Costa Rica: Inflation holds steady in August, while the Central Bank leaves rates unchanged on 21 August
September 6, 2019
Consumer prices fell 0.1% in August compared to the previous month, contrasting the 0.7% jump in July, which was a three-and-a-half year high and due to the introduction of an expanded VAT in the month.
August 9, 2019
Annual economic growth in cyclically-adjusted terms inched up to 1.5% in June from May’s revised 1.4% (previously reported: +1.3% year-on-year), which represented the weakest reading since December 2009. Growth remained historically subdued in June due to a continued decline in activity in the agriculture sector, which is struggling following a prolonged spell of dry weather, partly due to the El Niño effect.