Country Report Costa Rica June 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, which the incumbent party is early favourite to win.
• 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 3.8% of GDP in 2010. The 2009 figure is down from last month's forecast of a deficit of 4.2% of GDP owing to downward revisions to our revenue forecast.
• The global economic downturn appears to be bottoming out, although talk of an imminent recovery seems premature. Global GDP will contract by 1.8% this year, with the recession synchronised across most regions.
• First-quarter data suggest Costa Rica's recession is deeper than earlier feared, leading us to revise down our forecast for 2009 from a contraction of 2.5% to one of 4%. Growth will recover to 2.5% in 2010.
• After a sharp widening in 2008, the current-account deficit is forecast to narrow in 2009, to 2.6% of GDP, reflecting falling domestic demand and lower import prices, which will more than offset a weaker services surplus.

Monthly review

• Laura Chinchilla is now favourite to be the PLN's presidential candidate and therefore favourite for the 2010-14 presidency; Otton Solis has been chosen as the opposition Partido Accion Ciudadana (PAC) presidential candidate.
• The PAC might see its vote dwindle further, following the creation of another anti-DR-CAFTA party, the Partido Alianza Patriotica (PAP), which successfully registered as a political party in May.
• NGOs have proposed changes to the Plan Escudo, which the government is considering.
• The recession, much lower merchandise trade flows and DR-CAFTA tariff reductions have led to a sharp fall in government revenue. Together with countercyclical spending, this is pushing the fiscal accounts into deficit.
• There is renewed optimism over EU partnership talks, which are now planned to be completed in July.
• The recession deepened in the first quarter, with manufacturing output down by 16% in the first quarter.
• Contracting domestic demand and lower international prices have brought inflation back to single figures.

Source: Country Report

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