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Economy: Recession looming in Costa Rica?

Reforms are crucial to reinforce fiscal consolidation and create buffers against shocks

par François Lanthier
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A look into the situation In Canada…

According to updated forecasts by Desjardins, it is expected that the economy of Canada and Quebec will continue its deteriorating trajectory and is likely to slide into a recession by the end of the year. Furthermore, as highlighted in a recent presentation by Desjardins’ Chief Economist, Jimmy Jean, the housing shortage is a persistent issue showing no signs of improvement.

Preliminary data from Statistics Canada for the third quarter indicates that the economy contracted at an annualized rate of 0.1%. It’s worth noting that the same contraction trend was also observed in the second quarter.

And what about the United States?

According to a survey conducted by the NABE (National Association for Business Economics) in late 2022, more than half of the 200 surveyed American economists predict a recession in the United States in 2023. Moreover, nearly three-quarters of them believe that inflation will remain above 4% until the end of the year. Interestingly, the Federal Reserve does not share this gloomy scenario.

But will the recession affect the Central American economy, including Costa Rica?

In many aspects, Costa Rica is a success story in terms of development. It is considered an upper-middle-income country, showing steady economic growth over the past 25 years. This growth stems from an outward-oriented strategy, emphasizing openness to foreign investment and gradual trade liberalization.

Costa Rica is also a global leader in environmental policies, as evidenced by the innovative Payments for Environmental Services (PES) program, which has successfully promoted forest and biodiversity conservation, making Costa Rica the only tropical country in the world to have reversed deforestation.

Growth exceeded expectations in the first half of 2023 (4.7%), supported by strong domestic and external demand. As inflation stabilized and labor market conditions improved, driven by growth in the services sector, the poverty rate is expected to decline to 13.8% in 2023 and around 13.5% in 2024.

Recent improvements in debt management should help lower Costa Rica’s financing costs. Additional reforms have been announced, including reductions in tax expenditures, income tax, and reduced fragmentation of social programs. These reforms are crucial to reinforce fiscal consolidation and create buffers against shocks while protecting the poor.

These challenges affect the basic pillars of the Costa Rican development model: inclusion, growth, and sustainability.

The government has strived to address these problems and is committed to an inclusive society that guarantees the welfare of its people, supported by transparent and accountable public institutions.

Good news for real estate investment in Costa Rica. With this continued growth, investors will be pleased with their returns on investment.

Would you like to be part of the growth of this beautiful country and take advantage of everything incredible it has to offer? Call us at +506-8518-1220 (WhatsApp) and for all your real estate needs in Costa Rica.

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