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Costa Rica will close 2022 with 4.4% growth but will drop in 2023

According to ECLAC report

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QCOSTARICA – The economic growth projections for Costa Rica are estimated at 4.4% at the end of 2022, according to the Economic Commission for Latin America and the Caribbean (ECLAC), a figure higher than the average for Latin America, which is expected ot be 3.7%.

However, 2023 is less hopeful for Costa Rica, since it is projected that it will be 2.6%.

A street in San Jose | Credit: Shutterstock

This trend is consistent with the rest of the region, which has been marked by a context of external uncertainties and internal restrictions and it is estimated that in 2023 the slowdown in economic growth will deepen and an average rate of 1.3% will be reached in the region, below Costa Rica, highlighted the organization in its report Preliminary balance of the economies of Latin America and the Caribbean.

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According to José Manuel Salazar Xirinachs, executive secretary of ECLAC, the monetary policy responses adopted in the world this year, in a context in which there was an excessive increase in global inflation and which has caused increases in the financial volatility, there were fewer capital flows to the economies of the region.

After the dynamism shown in the first half of 2022, the region’s economic activity has slowed down, reflecting, on the one hand, the exhaustion of the rebound effect in the 2021 recovery and, on the other, the effects of restrictive monetary policies, greater limitations on fiscal spending, lower levels of consumption and investment, and the deterioration of the external context.

But, it is expected that the reduction in global inflation by 2023 will tend to moderate the increases in the monetary policy rates of the main central banks.

Salazar was emphatic that Central America has different conditions from the rest of the Latin American region and that they are much more present in Costa Rica, so the growth projection of the isthmus is greater.

By 2022, growth in Central America will be 4.2% on average and by 2023 it will reach 3%. The growth of 2023 will be strongly marked by Panama, El Salvador and the Dominican Republic (which was included as part of the region).

These figures put the region in better conditions than the rest of Latin America. If compared to the countries of South America, there is a huge difference in size, but they have managed to integrate a lot with the United States and another of their commercial strengths is the intra-regional market.

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The ECLAC secretary indicated that the conditions of the Central American region are what make the difference, since many of its nations have favorable elements, such as the proximity to the United States, its main trading partner and that it has worked on the reconfiguration of its supply chains. value, bringing many of the investments it had in Asia closer.

“Costa Rica is the best positioned since it meets all the requirements such as stability, a good investment climate, good logistics, proximity to the United States, great quality of human talent, availability of universities and the educational system of professional training to create the talent that companies require. It has also become a leader in highly dynamic sectors such as medical devices, information technology, and services, which instead of declining in the pandemic were the boom,” said Salazar Xirinachs.

For the ECLAC representative, Costa Rica could become a benchmark for study for many Latin American countries, in terms of positioning itself in the sectors that are drivers of the economy, although there is still much to be done on other issues.

Avenida Segunda, downtown San Jose

Challenges in Latin America

The report highlighted that the process of recovery of the labor markets that took place in the first half of 2022 did not make it possible to eliminate the traditional gaps between men and women that are shown by indicators such as the labor participation rate and the unemployment rate. During 2022, both an increase in informality and a fall in real wages have been observed.

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ECLAC also highlighted that in the fiscal sphere, although a reduction in the primary deficit is observed, the levels of indebtedness continue to be high, so it can be expected that fiscal space will continue to condition the path of public spending.

In addition, there is a risk of interest rate increases, currency depreciation and greater sovereign risk, which would make it difficult to finance government operations in 2023.

Translated and adapted from Semanario Universidad. Read the original, in Spanish, here.

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