Tuesday 7 February 2023

2022 comes with increases in rates, inflation and exchange rate

The Central Bank has already started a cycle of rate hikes, increases in international inflation put pressure on domestic ones and low reserves limit exchange rate intervention

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7 February 2023 - At The Banks - BCCR

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QCOSTARICA – For this year, 2022, both the Banco Central (Central Bank) and the Organization for Economic Cooperation and Development (OECD) expect Costa Rica’s economy to continue recovering; however, unemployment would remain high.

Paseo de las Flores shopping center, in Heredia.

The Central Bank estimated, last October, a growth of 4.5% for domestic production in 2022 and the OECD, 3.9% in its Economic Outlook report, published on December 1st.

Higher production should bring with it more jobs and more income for households, and although it is already doing so, it is insufficient to significantly lower unemployment. For this indicator, the OECD estimated a rate of 14.3% for 2022, still far from the unemployment of close to 12% that existed before the pandemic and which was already high.

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As in 2020 and 2021, there could be changes in the forecasts as they depend largely on uncertain factors.

“There is a high degree of uncertainty about the expected behavior of economic growth and the level of employment in Costa Rica for 2022,” said economist Carlos Conejo, researcher at the Programa de Estudios Fiscales (Fiscal Studies Program) at the Universidad Nacional (UNA).

For Conejo, he told La Nacion that production growth for next year is conditioned by the behavior of the health emergency caused by covid-19.

“Although everything seems to indicate that the worst has already occurred about the coronavirus, the appearance of new variants of the virus could significantly affect the economic performance and social well-being of the country and the world next year,” he warned.

In his opinion, the economic policy proposal presented by the next administration influences.

“It is important that the new government that will assume power in May 2022 present from the beginning of its administration a clear, coherent and viable proposal on the economic policy guidelines that the country will follow in the coming years, which gives confidence to the economic agents to promote investment, economic reactivation and job creation,” said the economist.

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Also influencing the future of the agreement with the International Monetary Fund (IMF) to maintain exchange rate stability, control of interest rates and inflation, fundamental elements to underpin the economic reactivation. Furthermore, this agreement is essential for the consolidation of public finances, said Conejo.

In addition, for our small economy the international economic situation has a relevant weight. For Conejo, the behavior of the price of raw materials, trade conflicts between the United States and China, as well as the economic performance of the main trading partners will have a significant effect on the behavior of economic growth and employment in the country in 2022.

In a discussion with Danilo Montero, General Director of the Office of the Financial Consumer and Ronulfo Jiménez, economic advisor of the Costa Rican Banking Association, held on December 9, the latter indicated that in 2021 the growth of the economy has improved, although not for all, because there are still sectors further behind, but the direction “looks good”.

“One would expect that in 2022 that improvement process will continue. To a large extent, this process of improving the economy has been underpinned by several things: the international part, with all the problems we are talking about about containers, has improved and has allowed exports to grow and those that have grown are basically those of the Zone Frank, but the others too; that external engine is the one that has roared the best, ”said Jiménez. In addition to the fact that the fiscal part has been ordered, which has generated certain reassurances.

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However, as happened in 2020 and 2021, it is possible that the projections will change during the year, although the direction, for planning purposes of companies, is positive for now.

 

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