Projected to Grow by 3.6% in 2024, According to UNA Study - Expat Community

Projected to Grow by 3.6% in 2024, According to UNA Study

Nov 17, 2023 | Costa Rica, News & Articles | 0 comments

The Costa Rican economy is expected to grow by 5.3% this year, with a projected increase of 3.6% for 2024, according to the Macroeconomic Model presented this Wednesday by the International Center for Economic Policy for Sustainable Development at the National University (Cinpe-UNA).


Economist Emmanuel Agüero, a researcher, explained that this model “contains a methodology that considers aggregate supply, aggregate demand, and a monetary policy rule, complemented by an interest rate parity equation and the dynamics of debt relative to Gross Domestic Product. This last point is innovative as it allows introducing the effects of fiscal policy into the model and how it will determine whether public debt follows a sustainable trajectory in the medium term.”


The convergence of several factors, such as increased dynamism in specific production sectors, greater stability in interest rates, and a continued decline in inflation, are conditions that would foster the growth of the Gross Domestic Product (GDP) projected for the country at the close of this and the next year.


Nevertheless, the report calls for the country to continue on the path of fiscal adjustment in the current economic context, which has allowed it to achieve a primary surplus in its relationship between income and expenses, so that the burden of interest on public debt can decrease.


The dynamism in the local economy continues to be uneven. This is explained by the fact that while companies located in the special regime (which includes tax-free zones) report a growth of 15.30% as of July 2023, the definitive regime – in contrast – in which the rest of the national productive sector operates, grows by only 3.67%.


Inflation, on the other hand, remains at a value of -2.14%, and it is even expected to return to the target range of 2% to 4% set by the Central Bank of Costa Rica (BCCR). The exchange rate, although stable, is expected to close the year at ¢534.73 as an average amount in the Foreign Exchange Market (Monex).


These forecasts would occur in an international environment where moderate growth is expected in the major world powers. In the case of China, an increase in production of 4.2% is predicted, while the outlook for the United States and the Eurozone tends even further downward, with values of 1.5% and 1.2%, respectively.


Another factor analyzed by the Cinpe Macroeconomic Model has to do with the Monetary Policy Rate (TPM) determined by the Central Bank, which directly influences other market interest rates.


“A rapid reduction in interest rates by the BCCR will reduce the reward for investing in colones, causing a depreciation of the exchange rate and inflation. All of the above conditions the possibility of reducing interest rates, so the space is limited, given the international context,” reflected Marco Otoya, a Cinpe researcher.


On October 25, the BCCR lowered its TPM by 25 basis points (0.25) to 6.25%. For Cinpe-UNA, this indicator could experience a gradual reduction during 2024, reaching 5.50% by December 2024.


The report, presented by academics Olman Segura, director of Cinpe, and economists Emmanuel Agüero and Marco Otoya, emphasizes that the fiscal adjustment carried out by the country has been good and should be continued.


It highlights that, for the third consecutive year, the country’s primary balance would be in surplus territory when subtracting income versus expenses, excluding the payment of interest on public debt. This indicator would be 2.1% of GDP. However, it is expected that for 2023 and 2024, the debt/GDP ratio will remain above 60%.


On the income side, at the end of 2023, the indicator would be 11.4% of GDP, while in the realm of public spending, it would reach a percentage of 13.6%, the lowest in the last five years, according to the report.



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