Sunday 24 September 2023

Ticos see the possibility of an economic crisis as very distant

Lower interest rates, inflation and higher growth affect the projection

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23 September 2023 - At The Banks - Source: BCCR

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QCOSTARICA — The number of people who believe that Costa Rica will experience an economic crisis in the next five years decreased six percentage points in the last five months, now at 49%.

Elizabeth Morales, deputy manager of Coopecaja /LA REPÚBLICA

Consumer confidence in the future of the economy has been growing mainly due to lower interest rates, greater economic projection, and stability in the exchange rate.

The Banco Central (Central Bank) projected that the economy will grow 4.2% this year and that household consumption will also increase, as a result of better fiscal indicators and inflation.

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“People consider that they are better off than a year ago, this percentage increasing by seven percentage points in August, reaching 30%,” said Fernanda Alfaro, coordinator of the survey and researcher at the School of Statistics of the University of Costa Rica (UCR).

The optimism is not surprising since national production is also growing and this is good news.

Free zones (zonas franca) are showing better figures, but other sectors of the economy such as travel, construction, professional services, transportation and storage are also on the rise.

“A recession or crisis is very unlikely for now, because economic indicators such as inflation, interest rates and growth are adjusting upwards. A decrease in the consumer price index allows families to have greater availability of purchase, which causes a greater reactivation of the economy, as well as benefits from not putting pressure on the movement in interest rates and the productive sector,” said Elizabeth Morales, deputy manager of Coopecaja.

Monetary policy rates have been falling by leaps and bounds, from 9% in March to 6.5% currently.

“The second half of the year has very encouraging expectations for all people who are debtors and for future loan applicants, since the constant drops in interest rates and relative stability in the exchange rate create an ideal panorama to acquire different financing services,” said Bernal Allen, deputy financial manager of Mucap.

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Now, this whole positive outlook has risks, especially geopolitical, due to the crisis between Russia and Ukraine, which may cause adjustments in the indicators of the country’s main economic partners to cause the local economy to take measures to contain them, such as adjustments in rates or other indicators.

“If the United States improves its economic indicators and moves away from an economic recession, it is very positive for Costa Rica, since it is one of the main economic partners, which allows greater economic growth, reduction of rates, inflation and increase in the gross domestic product, and greater job creation, with which the economy will perform better,” said Daniel Suchar, financial analyst.


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