Country Report Costa Rica April 2009

Outlook for 2009-10

• The success of the government's policies to mitigate the economic downturn will be a crucial determinant of the ruling party's prospects in the February 2010 general elections. The incumbent is early favourite to win the elections.
• Economic policy will focus on the Plan Escudo, an ambitious emergency economic stimulus and social protection plan, which is proving slow to implement.
• We forecast that the non-financial public-sector (NFPS) balance will turn from a small (0.2% of GDP) surplus in 2008 to deficits of 4.3% of GDP in 2009 and 4% of GDP in 2010.
• The global economic outlook continues to deteriorate at an alarming rate. We now forecast that global GDP will contract by 1.8% (down from 0.8% in our March report), with the recession synchronised across all regions.
• The global downturn and indicators from early 2009 have led us to make a sharp downward revision to our growth forecast for Costa Rica, to a contraction of 2.6% in 2009 (down from 0.8% in our March report).
• After a sharp widening in 2008, the current-account deficit is forecast to narrow in 2009, to 3.2% of GDP, reflecting mainly falling domestic demand and lower import prices.

Monthly review

• The two parties with realistic hopes of winning the February 2010 presidential election are preparing for internal party elections to choose their presidential candidates.
• In mid-March, after an interval of 48 years, Costa Rica re-established full diplomatic ties with Cuba.
• The public finances worsened again in February, affected by the economic downturn as well as falling customs-related revenue. Progress on implementation of the Plan Escudo has been slow so far.
• The government is implementing new strategies to boost the important tourism sector.
• The economic downturn accelerated in early 2009, with the monthly economic activity index recording a 5.7% year-on-year fall in February, marking five consecutive months of year-on-year falls.
• With domestic demand subdued, inflation is starting to ease towards target.

Source: Country Report