Costa Rica Economic Forecast

Annual growth accelerated slightly in Q1 this year due to sharper increases in private consumption and exports, as well as rebounds in public spending and fixed investment. Lower inflation and unemployment, as well as robust external demand, drove the reading. Turning to Q2, in April, inflation decelerated back into the 2.0%–4.0% target range, boding well for private spending. Moreover, at its April meeting, the Central Bank lowered interest rates by 100 basis points, reducing pressure on demand. Furthermore, pending final approval from the IMF’s Board, the government’s fiscal discipline enabled it to secure another USD 527 million in funding in early May, boding well for public spending. In politics, a recent survey found that Costa Ricans still approved of President Chaves after one year in office but wanted him to do more to tackle rising crime, with new government measures likely soon.

Inflation almost halved to 2.4% in April (March: 4.4%) on the back of lower price pressures for food and a sharp drop in transportation prices. Softer demand and a tougher base effect will keep prices in check this year. That said, since Costa Rica is reliant on food and energy imports, fluctuations in prices for these are key upside risks.