Reducing costs and barriers to foreign trade in Central American economies is key for the region to overcome the economic recession caused by the outbreak of Covid-19.
A report prepared by the World Bank explains that boosting economic activity and employing a higher percentage of the labor force are objectives that can be achieved through reforms that strengthen the private sector and attract investment.
During February 2021, economic activity fell 4.7% in year-on-year terms, a drop that evidences that the economic crisis caused by the covid-19 outbreak continues to affect Costa Rica.
According to the Central Bank of Costa Rica (BCCR), as per the cycle trend series of the Monthly Index of Economic Activity (IMAE), the inter-annual variation of production reached its lowest point in June 2020, at which point it began a gradual recovery process.
The World Bank predicts that by the end of this year Panama and the Dominican Republic will be the economies of the region that will grow the most, and the countries that will report the lowest increases in their production will be Costa Rica and Nicaragua.
After the region's economies were considerably affected in 2020 by the sanitary crisis generated by the Covid-19 outbreak, the outlook of international organizations for 2021 is encouraging.
During 2020 in all countries of the region, construction activity decreased considerably and Central American cement imports stagnated, this adverse scenario is explained by the economic crisis generated by the pandemic.
The construction industry statistics system, which is part of the interactive platform "Construction in Central America" of CentralAmericaData's Business Intelligence area, compiles the most important industry data for each of the countries in the region.
During January of this year, production in Costa Rica decreased 4.8% in year-on-year terms, a decline that is explained by the economic crisis resulting from the pandemic caused by the outbreak of covid-19.
In January 2021, the production of manufacturing and computer services grew 1.9% and 0.7%, respectively, in year-on-year terms. In contrast, the rest of the economic activities showed drops in their level of activity in relation to January 2020, states a report by the Central Bank of Costa Rica (BCCR).
As a result of the economic crisis generated by the pandemic, it is estimated that four out of every five Central American companies were forced to increase their debts in order to sustain their operations.
According to the 2021 Regional Survey on economic reactivation prepared by the Federation of Chambers of Commerce of the Central American Isthmus (Fecamco), the resources obtained through indebtedness, served the companies to pay payroll, face rents and support operations.
Twelve months after Central America began a health and economic crisis triggered by the covid-19 outbreak, Guatemala was the fastest recovering economy and Panamanian economic activity is the slowest to return to pre-pandemic levels.
In March 2020, the first cases of covid-19 began to be detected in the countries of the region. The highly contagious disease, which at that time had already claimed the lives of thousands of people around the world, forced Central American governments to establish mobility restrictions.
Given the economic crisis generated by the covid-19 outbreak, nine out of ten companies operating locally reduced their revenues and one out of three made temporary closures.
Between May and August 2020, a COVID-19 section was included in the Directory of Businesses and Establishments (DEE) as part of the update, in order for businesses to indicate what the main effects of the pandemic were. It was confirmed that 94% were affected by Covid-19, where 91% indicated as main consequence the reduction of income, informed the National Institute of Statistics and Census (INEC).
In December 2020, the Monthly Index of Economic Activity reported a year-on-year variation of -5.1%, a drop that is explained by the restrictions imposed due to the covid-19 outbreak.
Since the calculation of the Monthly Index of Economic Activity (IMAE) series began in 1991, the average annual gross production, measured by the IMAE, has only fallen on two occasions, specifically in 2009 and 2020. Both cases coincide with world crises, but the impact has been much more severe for Costa Rica in the case of 2020, according to an official report.
As a result of the crisis caused by the covid-19 outbreak, during the second quarter of 2020 the unemployment rate at national level rose to 24%, for the period from July to September it decreased to 22% and in the last three months of the year it fell to 20%.
Regarding the unemployed population, for the IV Quarter of 2020 it was estimated at 488 thousand people, of these 240 thousand are men and 248 thousand women, the unemployed population increased by 178 thousand people on a year-on-year basis, 97 thousand men and 81 thousand women, informed the National Institute of Statistics and Census (INEC).
In order to face the crisis generated by the covid-19 outbreak, Costa Rica extended until December 31, 2021 the measure that allows clients of financial institutions to benefit from extensions, refinancing and readjustments without the need to carry out debtor stress analysis.
According to Conassif, additionally, banks were asked to reapply their internal policies for measuring the payment capacity of each client as of April 1, 2021.
Strengthening trade between the US and the region, fighting corruption in the Northern Triangle and reducing illegal migration flows, are some of the axes on which Joe Biden, the US president who has been sworn in, is expected to focus.
Biden, representative of the Democratic Party and winner of the last US elections, whose results were close, arrives at the White House to replace Donald Trump.
The World Bank has improved economic growth projections for all Central American economies for 2021, with Honduras, El Salvador and Panama having the most promising forecasts.
In June 2020, when the health and economic effects of the pandemic that caused the covid-19 outbreak were beginning to be reported, the World Bank predicted that in 2021 Nicaragua's Gross Domestic Product would decrease by -1.6%, but in a January 2021 publication it projected that the drop would be -0.9%.
Because of the fall in economic activity and the restrictions imposed to contain the spread of covid-19, businessmen in Costa Rica and Panama predict that the process of economic recovery will not be completed in the near future.
In this crisis scenario generated by the covid-19 outbreak, the Costa Rican economy does not show clear signs of recovery, since during November 2020 the Monthly Index of Economic Activity reported a year-on-year fall of 6.2%, a decline similar to that reported in October, when it was 6.3%.
Because in this context of new commercial reality the sales of alcohol, fertilizers, soaps, detergents and chemical and pharmaceutical products have increased, the productive activity of the Central American industrial sector has been dynamized.
According to figures from the Bank of Guatemala, during the III Quarter of 2020 the Guatemalan Gross Domestic Product reported -2% year-on-year variation, a behavior that contrasts with the evolution of the manufacturing industry, which for the period in question registered a 3% increase in its production.
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