Thursday 1 December 2022

Central Bank raises economic growth projection to 3.9% for 2021

The monetary authority added a percentage point to its forecast for an increase in production, which it had calculated at 2.9%, last April. Rodrigo Cubero explained that the improvement is explained by higher external demand

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1 December 2022 - At The Banks - BCCR

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QCOSTARICA – The Central Bank of Costa Rica (BCCR) revised production growth upwards and now expects it to increase 3.9% in 2021, which is one percentage point more than its forecast in April (2.9% ).

The greater dynamism of the companies in the free zone drive the improvement in the country’s economy. In the image, workers from the Boston Scientific company. (Melissa Fernandez Silva)

This was reported on Friday, July 30, by Rodrigo Cubero, president of BCCR, during the presentation of the review of the Macroeconomic Program 2021-2022.

For next year, the BCCR estimates that Costa Rican production will grow 3.7%, slightly above the 3.6% presented in the previous review.

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Cubero affirmed that the main risks for these projections are the delay in the approval of the laws related to the agreement with the International Monetary Fund (IMF), as well as the increase in the contagion of the new coronavirus.

“The Costa Rican economy continues to recover; in fact, the result is better than expected, due to the external situation. But the situation of search for fiscal sustainability, which improves the confidence of economic agents, also has an influence,” said the president of the BCCR.

External effect. The better expected growth is explained by higher external demand as a result of the more pronounced dynamism of Costa Rica’s trading partners, especially the United States.

Cubero explained that the rebound in economic activity in the country began, first, due to the special free zone (zona franca) regime, given the greater external demand. But the definitive regime also began to have greater dynamism in foreign and domestic sales.

The BCCR data show that, as of the previous June, sales of goods abroad from the free trade zone had an increase of 53.7%, compared to the same period last year. The year-on-year increase was 13% in the first half of this year.

Cubero explained that the economic activities that showed the best results are manufacturing, real estate, and information and communication, which managed to exceed pre-pandemic levels.

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For the manufacturing industry, a percentage variation of 10.5% is estimated during this year.

For hotels and restaurants, linked in a relevant way to tourism, growth of 6.7% is expected this year. However, this activity fell by 44.9%, in 2020.

A similar situation occurs with commerce. The BCCR estimates that it will grow 5.8% during 2021, from the 9.7% contraction registered the previous year.

“In the first part of this year, we had a tourism forecast that was not fulfilled and led us to be somewhat pessimistic. But now we are seeing a recovery that we incorporate into the new projection for 2021 and 2022,” said Róger Madrigal, director of the Central Bank’s Economic Division.

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For Alonso Elizondo, executive director of the Costa Rica Chamber of Commerce, this year there is a rebound effect in the sector.

“The growth numbers still do not put us at the level of 2019, in absolute values. The problem is that there are still many restrictions on capacity, hours and vehicles, which affects activity,” said Alonso.

Álvaro Jenkins, president of the Costa Rican Union of Chambers and Associations of the Private Business Sector (Uccaep), considered that the country requires changes to sanitary measures against covid-19 that improve economic activity.

He mentioned, for example, that eliminating the vehicle restriction during the week and extending it to 11 p.m., during the weekends, would help companies increase their activity and hire new personnel.

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