Country Report Costa Rica July 2009

Outlook for 2009-10

• Laura Chinchilla, the candidate of the ruling PLN, is early favourite to win the February 2010 presidential election, ahead of Otton Solis of the PAC.
• Despite recession, the PLN remains popular and more trusted than the PAC, and Ms Chinchilla will be strongly backed by the popular current president, Oscar? Arias.
• Economic policy will focus on the Plan Escudo, an ambitious emergency economic stimulus and social protection plan, which is gradually being implemented.
• The fiscal balance will turn to deficits of 4.5% of GDP in 2009 and 3.6% of GDP in 2010, with revenue sharply down and expenditure up.
• The global economic downturn appears to be bottoming out, although talk of an imminent recovery seems premature. Global GDP will contract by 1.7% this year, recovering only slowly in 2010.
• First-quarter GDP data confirm our view that GDP will contract by 4% this year, which assumes a gradual recovery starting in the second half of the year, helped by the Plan Escudo and a lower base of comparison.
• After a sharp widening in 2008, the current-account deficit will be narrower in 2009 and 2010, at 2.6% and 3.2% of GDP, mostly reflecting low domestic demand, which will more than offset a weaker services surplus.

Monthly review

• Ms? Chinchilla has won the PLN's primary election, bolstered by support from Mr Arias, and will face Mr Solis in February's election. A former president on trial on corruption charges, Rafael Angel Calderon, will stand for the PUSC.
• The Plan Escudo has progressed, with development bank money being freed up for agricultural loans. Despite some union opposition, some companies and workers have agreed to implement more flexible working arrangements.
• Fiscal revenue has continued to fall sharply, which together with firm expenditure growth has raised the fiscal deficit further.
• The Central Bank has made revisions to its economic assumptions for 2009. Although it is now forecasting a contraction in 2009, its revised numbers are still more optimistic than our own forecasts.
• First quarter GDP contracted by 4.8% year on year as destocking continued and trade flows fell sharply.
• Agricultural output fell by 8.6% year on year in the first quarter, with the sector having suffered from poor weather conditions that disrupted plantations in late 2008 and early 2009.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60;48;49;2834;80;47;1;15;10;70
NAICS Code: 336;52;517;22;3254;62;48;11;23;212;72