Costa Rican Economic Balance in 2018

The economic environment in 2018 was defined by a context of fiscal uncertainty, economic slowdown and greater financial volatility, together with a difficult external environment.

Thursday, January 3, 2019

Regarding the fiscal uncertainty occupying a large part of last year's economic agenda, explains the Central Bank of Costa Rica (BCCR) which was originated, firstly, in the electoral process that lasted until April, and later in the difficulties faced to achieve an agreement that would help restore the sustainability of public finances in the medium term.

On the other hand, economic growth, measured by the year-on-year variation in the gross domestic product (GDP) cycle trend, declined last year, recording a 2.1% rate in the third quarter (3.2% in the same period in 2017 and 2.8% as the average rate of the two previous quarters).

According to expenditure components, the deceleration occurred both in household consumption and in the General Government, whose effects were partly offset by the increase in external demand for goods, particularly medical devices, according to a report by the BCCR.

Regarding the foreign exchange market, the document details that three events are identified throughout 2018. A first semester with relative stability, both the net supply of foreign exchange by the private sector allowed to meet the requirements of the Non-Banking Public Sector (SPNB).

On the other hand, there were strong exchange rate tensions between July and November. The effect of a seasonally less-surplus private market was reinforced by several events:i) the Central Government went from being a tenderer to a net foreign exchange claimant;
ii) oil prices increased (until October);
iii) fiscal uncertainty increased the preference for financial instruments in foreign currency, and;
iv) the consequent increase in the exchange rate and exchange-rate expectations accelerated the preference of economic agents for savings in dollars and thus reinforced the previous effects.

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Risk Perception and High Financial Cost

January 2019

The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.

Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.

Economic Challenges for 2019

January 2019

During the new year, the main challenge for Costa Rica's economy will be to increase above 3%, given that 2018 was marked by a context of fiscal uncertainty and economic slowdown.

According to the Central Bank of Costa Rica, economic growth, measured by the year-on-year variation of the trend cycle of gross domestic product (GDP), slowed last year, and recorded to the third quarter a 2.1% rate (3.2% in the same period of 2017 and 2.8% as the average rate of the two previous quarters).

Dollar Price: Upward Trend Continues

October 2018

The impact of the strike, the uncertainty of the fiscal situation and the increased risk perception by investors and consumers, explain much of the depreciation that the Colon is suffering against the dollar in Costa Rica.

Figures from the Central Bank of Costa Rica (BCCR) suggest that between September 27th and October 5th the exchange rate in the wholesale market Monex registered a significant upward trend, which is reflected in the increase from ¢570.75 to ¢591.25 per dollar, equivalent to a depreciation of 3.59%.

Panama As Seen by the IMF in March 2017

March 2017

It is expected that economic growth will increase slightly to 5.1% in 2017, and about 5.5% in the medium term, supported by the expanded Canal and developing investment projects.

From a press release issued by the IMF:

Panama’s economy is expected to remain among the most dynamic in the region.

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