Costa Rica Lowers 2024 Economic Growth Forecast to 3.8%
The Central Bank of Costa Rica (BCCR) has adjusted its economic growth projection for 2024 to 3.8% from an earlier estimate of 4% amid a slower demand in critical sectors and internal market challenges.
In a recent update to its Monetary Policy Report, the Central Bank of Costa Rica (BCCR) revised the nation’s economic growth projections, signaling a slight deceleration in the pace of economic expansion expected in 2024 and 2025. Initially projected at 4% for 2024, the growth forecast has now been adjusted to 3.8%, with the 2025 outlook similarly reduced from 3.9% to 3.8%.
Economic Trends Impacting Costa Rica
This revision reflects broader global economic trends impacting Costa Rica, particularly in the medical equipment, business services, and IT sectors, which have seen reduced external demand. Additionally, domestic factors such as a slowdown in disposable income growth—primarily due to less favorable international trade terms—have contributed to tempered expectations.
The BCCR’s report indicates that moving into 2025, domestic demand is expected to be the primary driver of economic growth, complemented to a lesser extent by external demand. This shift underscores the importance of strengthening internal markets and diversifying economic activities to reduce dependency on international factors.
Regarding inflation, the BCCR anticipates a return to the target tolerance range of 2% to 4% by the first quarter of 2025. This projection is based on the central bank’s strategic monetary policy adjustments, including three key rate cuts during the first four months of 2024: a 25 basis point reduction in January followed by two 50 basis point cuts in March and April, bringing the Policy Rate to 4.75%. These decisions were grounded in a thorough analysis of inflation trends, expected macroeconomic conditions, and identified risks at each stage.
Fiscal Trajectory Towards Sustainability
The bank also highlighted the country’s fiscal trajectory, which appears to be on a path toward sustainability. With projected primary surplus (excluding debt payments) of 1.9% and 2.2% of GDP for 2024 and 2025, respectively, and financial deficits (including debt payments) expected to be 3.1% and 2.5% of GDP in the same periods, the government’s debt-to-GDP ratio is anticipated to decrease. By 2025, this ratio is expected to fall below 60%, a significant improvement compared to 2023.
Such fiscal management is crucial for Costa Rica as it navigates the dual challenges of stimulating economic growth and sustainably managing debt. The strategic rate cuts by the BCCR are intended to stimulate economic activity by making borrowing cheaper and encouraging investment, particularly in sectors that can drive domestic growth.
This approach also reflects a broader regional trend where Latin American countries grapple with similar economic challenges, including inflation control, managing external debts, and fostering domestic industries. Many are adopting a mix of monetary easing and fiscal prudence to balance encouraging growth and ensuring long-term economic stability.
Costa Rica’s economic management offers a compelling resilience and strategic adaptation case study. As the country heads towards 2025, focusing on bolstering internal demand while maintaining a prudent fiscal policy could serve as a model for other nations facing similar economic hurdles.
Proactive Monetary Policy
Moreover, the central bank’s proactive stance in adjusting monetary policy based on inflationary trends and economic indicators demonstrates a responsive and dynamic approach to financial management. By closely monitoring economic conditions and adjusting policies accordingly, Costa Rica aims to ensure that its economic growth remains robust despite international pressures and internal challenges.
As we look forward, the BCCR’s careful navigation through these economic waters will be crucial for Costa Rica’s ability to sustain growth, manage its debt, and progress toward a more prosperous and stable financial future. The lessons drawn from Costa Rica’s experience could also provide valuable insights for other economies in Latin America, illustrating the importance of adaptability and prudent economic management in achieving sustainable growth.
