Costa Rica's Growth Outlook Trimmed as Strong Colón, El Niño and US Tariffs Bite

• BMI analyst has revised its outlook for Costa Rica lower, forecasting real GDP growth to moderate to 3.7% in both 2026 and 2027 as the economy continues to stabilise following its post-pandemic surge. The monthly index of economic activity (IMAE) eased to 3.1% in the first half of 2026 and dropped as low as 2.0% in April, the third-lowest reading since 2020, while the central bank's economic confidence index also points to softening conditions.
• The slowdown is concentrated in agriculture and manufacturing. Manufacturing contracted 1.2% in Q2 2026, its first decline since 2020, as goods exports to the US, the largest destination market for Costa Rican goods, fell at the strongest rate in six years. Agriculture shrank 2.2% year-on-year in the same quarter, hurt by the sustained appreciation of the colón against the US dollar, which leaves the sector heavily exposed to FX risk, and by El Niño weather conditions. BMI expects the currency to remain strong through 2027 and El Niño effects to become more pronounced, keeping both sectors under pressure.
• On the expenditure side, private consumption and net exports are seen slowing through the rest of 2026 and into 2027, partly offset by stronger investment. Inflation remains below the central bank's 2.0% to 4.0% target and is not expected to return to that range until 2028, but sharp increases in fuel and transportation costs, alongside high unemployment, will weigh on household purchasing power. President Fernandez's flagship public infrastructure projects, including a maximum-security prison centre and several road projects in 2027 and 2028, should cushion part of the slowdown.
• Risks to the forecast lean to the downside, tied to US trade policy and fiscal constraints. Tariffs on several Costa Rican goods have already risen from an initial statutory emergency rate of 10.0% at the start of the year to 12.5% following the implementation of the new Section 301 forced-labor tariffs. Further increases, despite efforts by President Fernandez to remain compliant with the US, would continue to hit export performance and growth, while difficulties with tax collection could trigger tax increases that weigh on consumption or restrain investment projects.
• For investors, the combination of a firm colón, tariff exposure and soft domestic demand argues for caution on Costa Rican export-linked and consumer-facing names, with infrastructure-related activity the clearer offset. Sub-target inflation leaves scope for supportive monetary policy, but growth looks set to hold near 3.7% into 2027 rather than reaccelerate.

(Source: BMI, a Fitch Solutions Company)