In 2021, the economy of Costa Rica achieved its highest growth in the last 14 years: 7.6%

The economy of Costa Rica reported a growth of 7.6% last year. This was the highest rate of expansion recorded since 2008. Rodrigo Cubero, president of the Central Bank of Costa Rica (BCCR), recently shared this information during his 2022-2023 Monetary Policy Report presentation.

The official explained that the improvement occurred after Costa Rica experienced a contraction of its economy of 4.1% in 2020. This result was mainly due to the effects of the Covid-19 pandemic.

At the end of 2021, the gross domestic product (GDP) growth was several percentage points above the forecasts made in the previous year. In January of that year, Costa Rica’s Central Bank projected that the production growth would be 2.6%; in July, it raised it to 3.9%, and in November, it placed it at 5.4%.

The economy of Costa Rica bounces back

“The remarkable performance of the Costa Rican national economy, after the profound impact of the pandemic, is testimony to the commitment and resilience of households and workers and the dynamism and diversification of the productive sector. Moreover, all parties have been supported by policies focused on seeking recovery and strengthening macroeconomic and financial stability,” added Cubero.

He added that the result of the last year went beyond the economic rebound compared to the contraction of 2020. “In 2021, apart from the rebound effect, we had dynamic economic movement. This was not only due to the dynamism of free zone companies but also because of the definitive regime. This circumstance means that the recovery of the economy of Costa Rica has been much more generalized,” he asserted.

The improvement registered in 2021 was based on a rise in household consumption, which had a positive variation rate of 5.8%, compared to -5% the previous year. Additionally,  private investment grew 15.5% last year, compared to the 0.9% variation registered in 2020.

In contrast, public investment had a variation rate of -20.6% last year, compared to -10.6% in 2020. Cubero assured that, in 2021, the decline in state investment accelerated due to the Cochinilla Case, which involved kickbacks for public works projects.

José Luis Arce, director of FCS Capital, described last year’s robust economic growth rate as “unexpected.”

“The recent growth of the economy of Costa Rica is the result of two factors. The first is the strong rebound in production since July 2020. This positive result is associated with the gradual withdrawal of the social distancing measures adopted during the pandemic and, secondly, the particularly robust growth of export activities and activities linked to the domestic market,” the economist stressed.

The BCCR previously presented the country’s economic projections under the Macroeconomic Program document. However, at the beginning of this year, the institution’s Board of Directors agreed to integrate it into the Monetary Policy Report.

Projections for the economy of Costa Rica for the next two years

For 2022 and 2023, the Central Bank forecasts growth of the Costa Rican economy of 3.9% and 4.0%, respectively. The president of the BCCR indicated that the lower percentage increase for the two years is because, in 2021, the economy had a very positive and high growth due to a recovery from the coronavirus pandemic.

It is forecasted that manufacturing, construction, trade, and transportation will be the sectors that will drive economic activity in the coming two years. Meanwhile, hotels and restaurants, strongly linked to tourism, will have 19.2% and 20.9% growth rates for 2022 and 2023, respectively.

Predictions of this sturdy growth are explained by the fact that this sector is in the process of recovering from the decisive blow that the Covid-19 pandemic dealt the economy of Costa Rica.

For the Costa Rican economist Daniel Ortiz, the rise in raw materials prices, the increase in the monetary policy rate (MPR), and the effects of the different variants of the coronavirus will moderate the growth rates of the economy for the next two years.

“The economy will have a freer internal environment. Private consumption and investment will be able to evolve in an environment with fewer restrictions and where consumers are already largely vaccinated,” said the director of Financial Economic Counselors ( Cefsa ).

Regarding the level of inflation, the BCCR has maintained a target rate of 3%, with a possible deviation of one percentage point up or down. During the first months of this year, Cubero further stated that the Consumer Price Index (CPI) would continue to rise and approach the 4% ceiling, but it will tend to moderate in later months.

Among the risks that may affect these projections, the Central Bank of Costa Rica lists the repercussions of the health crisis and a failure to approve projects agreed upon with the International Monetary Fund (IMF) and budgetary support credits for the Government.

“Going forward, we must maintain a firm commitment to stability, approve the fiscal measures in the agreement with the IMF and deepen the structural reforms necessary to promote stronger, more sustainable, and inclusive long-term growth,” Cubero asserted.

The official added that the Costa Rican labor market continues to recover in line with the rise in GDP. However, the drop in unemployment was not the result of greater job creation but rather the decision of some citizens to cease looking for a job. Nevertheless, workforce participation is increasing, albeit at a very slow pace.