Wednesday 5 October 2022

Central Bank former president sees it unlikely that Costa Rica will fall into recession

Rodrigo Cubero considers that a recession is not in the base scenario, however, he does not rule out that the country's production will decrease in some quarter

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05 October 2022 - At The Banks - BCCR

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QCOSTARICA – The possibility that the country falls into an economic recession during 2022 and 2023 is unlikely, assured Rodrigo Cubero, former president of the Banco Central de Costa Rica) –  Central Bank, who participated as a panelist in an activity organized by BAC Credomatic.

Rodrigo Cubero, former president of the Central Bank, in a talk, Friday, August 5.

In a talk organized by the private bank, on Friday, August 5, Cubero added that he foresees a slowdown in Costa Rica’s production in the coming months, and that growth for the coming quarters will slow down, but will not reach negative numbers, making it unlikely that Costa Rica will fall into a recession.

The increase in the prices of goods and services – the highest in the last 13 years – the rise in interest rates and the increase in fuel prices make families more cautious with their expenses.

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All this is a consequence of the post-pandemic effects, the container crisis and the war between Ukraine and Russia, which are external factors that affect the country.

“I think we cannot rule out that situation (a recession), but I don’t see it as in the base scenario, that is, I don’t see it as the most likely scenario, certainly the Costa Rican economy is going to slow down in the remainder of 2022, we had the first half of 2022, relatively robust, in terms of economic growth, but we are going to face a circumstance, a slowdown in the national economy as a result of the much less favorable external environment,” said Cubero, reported La Nacion.

Cubero explained that there are three reasons why he considers a recession in Costa Rica unlikely, first is arithmetic because the growth of the first semester of 2022 was already high, the second reason is that foreign direct investment shows a positive behavior, and thirdly, there are sectors that still have room to continue with the recovery after the pandemic, such as transport and tourism, and that contributes to growth.

“We still have a recovery process in the sectors that were most affected by the pandemic, particularly the tourism sector and the transport sector, which have not yet reached the levels before the pandemic, and have room to grow at relatively high rates and that on average. It would help mitigate the impact of the slowdown,” said Cubero.

According to Cubero, the measures announced by the Central Bank to curb inflation, as well as the increase in monetary policy rates, the minimum legal reserve and the liquidity reserves of cooperatives and solidarity associations, will cause a contraction in consumption and slow down the growth of production and the possibilities of generating employment.

As to commodity prices, the former Central Bank manager stated that prices have hit the ceiling, and that there is already a slowdown in the prices of international raw materials due to the expected lower global growth and therefore lower demand.

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“What the central banks in the world are trying to do is precisely to contain inflation as much as possible now so that it does not rise, and above all, that inflation expectations do not rise in the future, which would make it much more costly to lower it in terms of how much the interest rate needs to be adjusted in the future; then, the more quickly the expectations of economic agents respond to those expectations of interest rates, the less we will have to increase the interest rate tomorrow,” Cubero said.

With notes from La Nacion and La Republica.

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