Economy in 2021: How to Accelerate Recovery?

Strengthening the confidence of economic agents through a solution to the problem of public finances and moving forward with the process of vaccinating the population are key factors for the Costa Rican economy to recover quickly in the new year.

Monday, January 4, 2021

The spread of covid-19 and the restrictions imposed at the local and global levels severely affected most of Costa Rica's productive sectors, to the extent that the unemployment rate climbed to historical levels, several businesses were closed and economic activity fell sharply.

Despite that from the second half of 2020 authorities began to remove restrictions on economic activities, the economic recovery process has been full of ups and downs, a situation that produces uncertainty.

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According to data from the Central Bank of Costa Rica (BCCR), May 2020 was the month in which the Monthly Index of Economic Activity (IMAE) reported the worst year-on-year drop, registering a -10.4% variation.

In the following months, there was no clear recovery trend, since in June, July and August, variations of -7%, -9% and -8% were reported, in that order. In September, -5.6% and in October, -6.4%. See full figures.

According to specialists in the subject, if public finances are ordered and the vaccination process moves forward, by 2021 there is a chance that the economy will recover quickly.

Francisco de Paula, former president of the BCCR and former Minister of Finance, told that in 2021 there will be a recovery because "... the vaccination process has already started, and the need for closures will be greatly reduced. However, it will not be a quick recovery, because if we take the pandemic out of the game, in 2020 we would have had a growth very close to zero or very lean, because we have a very complicated fiscal situation."

For Rodrigo Cubero, president of the BCCR, "... what is going to be fundamental for the country is to continue working to approve the fiscal adjustment within an agreement with the IMF, as we have insisted, to give credibility and confidence to international agents about this commitment that the country has with the fiscal adjustment".

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After the IMAE reported year-on-year variations of -9% and -8%, respectively, in July and August, during September the Costa Rican economy continued to recover from the impact of the health crisis by reporting a 6% drop in production.

The Central Bank of Costa Rica (BCCR) reported that the economy is in the process of recovery, as a result of the process of reopening and gradual lifting of sanitary restrictions, which were imposed following the outbreak of covid-19. However, the upturn so far is not enough to fully recover the loss in production of the previous quarter, so the level of activity is still lower than in the last quarter of 2019.

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For the authorities of the Central Bank, the economy begins to show signs of recovery, because for four consecutive months the economic activity has registered a positive performance.

In June of this year, the Monthly Economic Activity Index (IMAE) began to show signs of recovery, recording a 1.2% year-on-year increase. In July and August, positive variations continued, with 1.4% and 1.7% increases reported, respectively.