Country Report Costa Rica December 2008

Outlook for 2009-10

• With export demand and inward investment set to fall sharply as a result of the global economic recession, political and social pressures will rise.
• Some respite will be brought by implementation of DR-CAFTA, which is expected to come on January 1st 2009.
• Economic policy will focus on measures to support economic growth and to increase monetary policy efficiency.
• We have made a further revision to our forecasts for the fiscal deficit, to 1.8% of GDP in 2009 and 1.7% of GDP in 2010 (from 1% and 1.2% in our Novemberreport).
• We have made further downward revisions to our forecast for global growth. GDP in the US, Costa Rica's most important trade and investment partner, is now projected to contract by 2% in 2009.
• The downward revision to our global forecasts have led us to make a further adjustment to our forecast for Costa Rican growth, which will slow to 1.9% in 2009 (previously 2.2%), before recovering to 2.6% in 2010.
• The Central Bank will manage a controlled real depreciation of the colon, following a spell of volatility. However, the currency may be subject to greater pressure to weaken, given a deteriorating external balance.
• After a sharp deterioration in 2008, to 12.2% of GDP, the current-account deficit is forecast to narrow in 2009-10, although it will remain wide, at 5% in 2009 and 4.5% in 2010.

Monthly review

• Support for the Arias administration has slumped further. Laura Chinchilla is the favourite to be nominated as the PLN's next presidential candidate, ahead of Johny Araya.
• The government has signed a number of co-operation agreements with China, including one to upgrade Costa Rica's oil refinery.
• The government is set to capitalise state banks with surplus fiscal funds, and the Inter-American Development Bank (IDB) is also prepared to providecapital.
• The government maintained a fiscal surplus in October, despite slowing growth.
• Economic activity slowed further in September, with manufacturing output down for the fifth successive month. Unemployment has increased for the first time in four years, and inflation remains at a 12-year high.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;70
NAICS Code: 336;72