Tuesday 7 February 2023

What will be the impact of the coronavirus on the Costa Rica economy?

The cost of imported products would increase; Tourism would benefit if foreigners chose Costa Rica instead of affected destinations

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7 February 2023 - At The Banks - BCCR

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The impact of the coronavirus on Costa Rica’s economy depends on the extent of contagion and how long it will last, as well as the effectiveness of government measures, such as interest rate cuts.

Image La Republica

However, the impact would be felt to a greater or lesser degree in the Costa Rican commercial sector: an increase in the cost of a number of imported products and, possibly, also in tourism.

While the demand for Costa Rican products would fall in other markets after the slow growth of the global economy, the price of imports would increase due to the fact that the production of factories in several parts of Asia, especially in China, is suspended.

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T-shirts, cars, cell phones and construction materials are some of the goods affected in China, which represents 16% of global industrial production.

The impact of the virus in South Korea and Japan is less than in China; However, both countries are affected.

As far as tourism is concerned, there could be fewer visitors, given the fear of many people traveling for several hours in an aircraft with hundreds of people, as well as being in a country where they do not know what health services are like.

On the other hand, Costa Rica could benefit if foreign tourism, especially North American – the main source – chose to come here instead of Europe or Asia.

In fact, arrivals in Liberia, both last month and January, were greater than those of the same period of 2019.

Demand in the rest of the world for Costa Rican products, meanwhile, would fall, while global growth expectations worsen.

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As for interest rates, it is possible that, if it had a very serious affectation, Costa Rica’s Central Bank would have to take measures.

Uncertain tourism

Costa Rica could receive fewer visitors for the fear of many people traveling; or, it could benefit if foreigners, mainly Americans, chose to come here instead of affected destinations.

María Amalia Revelo, Minister of Tourism, told La Republica that airplane seats available to Costa Rica for the first half of this year show an increase of 5%, and that the Instituto Costarricense de Turismo (ICT) – Tourism Board – has been in contact with the main airlines that serve our priority markets, which do not yet report an impact on their reservations to Costa Rica.

But that could change as the virus spreads and the decision not to travel, in general, because of the coronavirus is taken.

There will be an affectedness

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While the ICT sees the situation with optimism, other experts estimate that the coronavirus would affect the economy.

Laura Bonilla, president of the Chamber of Exporters, says exporters are concerned that at the logistic level congestion is reported in ports in Asia; that is to say, there are problems with the entry of ethical products.

“Some shipping lines have canceled of departures of ships from different ports. As for Europe, we already have reports of a drop in the consumption dynamics of the population of strategic countries, the market has become slow,” said Bonilla.

Allan Calderón, Deputy General Manager of Risk at the Banco Nacional, said “Costa Rica’s economy depends on and receives international prices, it affects a reduction in interest rates related to dollars. Although for those who have credits in dollars it reduces their monthly payments, in general, it is not good news, because it indicates that the economy would be slower and with less generation of employment and foreign investments, since there would be uncertainty worldwide.”

 

 

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