Country Report Costa Rica September 2017

Country Report Costa Rica September 2017

  • September 2017 •
  • Report ID: 2557267 •
  • Format: PDF

Outlook for 2017-21



  • The president, Luis Guillermo Solís of the Partido Acción Ciudadana, will maintain generally pro-business policies that will also have a strong social focus during the remainder of his term, which ends in May 2018.
  • Presidential elections will be held in February 2018. The Economist Intelligence Unit expects the Partido Liberación Nacional to win in a second-round presidential vote.
  • Following real GDP growth of 4.3% in 2016, we expect annual average growth of 4.1% in 2017-21, supported by solid private investment. However, levels of unemployment and inequality will remain high.
  • The next government will approve watered down fiscal reforms, after obtaining support from the legislature. Gradual consolidation will narrow the fiscal deficit to 3.5% of GDP in 2021, but the public debt/GDP ratio will rise.
  • We expect consumer price inflation to reach 2.6% at end-2017. Demand-side pressures, combined with the impact of currency depreciation, will push up inflation to an annual average 4% in 2018-21.
  • Following recent large-scale depreciation of the colón, we expect the pace of future weakening to be more measured. However, the currency's slide is forecast to continue, ending 2021 at C623.2:US$1.
  • After narrowing to 3.6% of GDP in 2016, the current-account deficit will widen modestly in 2017-20, as oil prices stabilise and imports of goods rise, before a narrowing to around 4% of GDP in 2021.


Review



  • On August 14th the OECD Committee for Scientific and Technological Policy approved Costa Rica's practices. This marks the fifth committee approval; 22 are required for OECD accession.
  • The Constitutional Chamber overruled an earlier decision from the Supreme Court that delayed the progression of reforms meant to address the actuarial deficit of the judiciary's pension system.
  • Inflation came in at 0.9% in August, its second-lowest level so far in 2017, owing to subdued international oil and commodity prices. In monthly terms, prices fell by 0.2%.
  • Monthly economic activity increased by 4.4% year on year in June, up from 4.1% in May, after significant monthly expansion in sectors such as information and communications, and manufacturing.


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