Country Report Costa Rica May 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.
• 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 4.2% of GDP in 2009 and 3.9% of GDP in 2010.
• The deterioration in the global economic outlook 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 all regions.
• Early 2009 data suggest that a sharp contraction in economic activity has been underway since late 2008. We forecast that the local economy will contract by 2.5% this year, staging a weak recovery in 2010.
• After a sharp widening in 2008, the current-account deficit is forecast to narrow in 2009, to 2.6% of GDP, reflecting mainly falling domestic demand and lower import prices.

Monthly review

• The president, Oscar Arias, has further consolidated his position, with the latest polls showing a firm level of public support, helped by public approval of his Plan Escudo, implementation of which is starting to progress.
• This, along with a continued poor showing from the main opposition Partido Accion Ciudadana, has kept Mr Arias's Partido Liberacion Nacional as early favourite to win the 2010 general elections.
• Government revenue has fallen so far in 2009, prompting the government to agree a precautionary US$375m stand-by arrangement with the IMF.
• Talks between Central America and the EU have broken down after Nicaragua's withdrawal, and only halting progress has been made in bilateral trade talks with China.
• Inflation has continued to trend downward, with producer price inflation falling particularly sharply in early 2009.
• Falling prices and slumping domestic demand have more than offset a fall in export earnings, narrowing the first-quarter merchandise trade deficit.

This report covers the following industry codes:
SIC Code: 48;2834;80;37;53;49;60;70
NAICS Code: 517;3254;62;336;44;22;52;72