Costa Rican Growth Revised Up Following Strong Q2 2022, Though Risks Remain  

 

• Real GDP growth in Costa Rica is expected to reach 3.7% in 2022, from 7.6% in 2021. This is an upward revision of the 2022 forecast from 3.0% previously, as growth outperformed expectations in Q2 2022 at 5.4% y-o-y.
• This follows an 8.4% print in Q1 2022, with robust activity in the manufacturing and transport sectors supporting headline growth. In addition, Costa Rica’s tourism sector has seen a rebound in recent months, driven by lower health restrictions and stronger demand for international travel.
• Despite this upward revision, Fitch Solutions maintains its view that growth will decelerate in H2 2022 as unfavourable base effects mount, elevated inflation eats into household purchasing power and tighter monetary policy limits investment.
• In July, inflation reached 11.5% y-o-y, the highest rate since April 2009, largely driven by high food and transport costs. It is expected that global commodity prices will remain well above historical trends through the end-2022 as the Russia-Ukraine conflict continues and supply chain issues linger. 
• Easing inflation and looser monetary policy will support stable growth in 2023, at 3.2%. This is largely in line with pre-pandemic trends, where growth averaged 3.4% from 2015-2019, and will be underpinned by stable private consumption and investment growth.
• The Central bank of Costa Rica (BCCR) will likely ease rates in response to falling inflation, cutting by 150bps to 7.00% by the end of  2023. This will support stronger private consumption and investment growth as purchasing power rises and borrowing costs fall. That said, US growth will slow from 1.8% to 1.6% in 2023, which will limit the upside for Costa Rica’s goods and services export growth.

(Source: Fitch Solutions)