Costa Rica in 2012; what comes for 2013?

Costa Rica ended up 2012 with a positive economic balance, or at least that´s what seems in the surface.

In terms of economic growth Costa Rica achieved an inter-annual GDP growth rate of 5.71% which seems positive if we compare these results with the ones obtained by other “developing countries” of the area such as Colombia (2.10%), Paraguay (1.05%), Mexico (0.66%) and Argentina (0.93%).  It is extremely positive if the results are compared to developed countries (US with 2.6% , Germany 0.4%, Japan  0.5% and the Euro Zone with -0.6%).

 

Laura-Chinchilla

However; before being too positive with these results,   it´s important to understand that Costa Rica is below in terms of economic growth when compared to other countries of the area such as Panama (9.55%) and Peru (6.5%) at the same time that sits very close to other nations such as Venezuela (5.2%), Chile (5.7%) and Ecuador (5.2%).

Although it is understood that the GDP growth rate is not a clear indicator of the real development of the economies (and comparison between countries is a very risky exercise to perform as many countries follow different rules to calculate their GDP), it provides an idea on where Costa Rica sits in terms of economic growth.  One other component to consider in order to have a clearer picture of the economy´s behavior is the inflation rate (Consumer Price Index), which would explain an increase on GDP when the prices raise.

In that area Costa Rica continues to show an steady behavior with a 4.55% inter-annual inflation rate which stays below the 5% mark that the Central Bank established by the end of 2010. This metric not only shows a positive trend (being 2012 the fourth year in a row with an inflation rate below 10%) but a sign of control over prices from the local government, as well as over supply and demand.

If we compare the results with the countries mentioned before, Costa Rica seems to have a similar behavior as other countries in the area: while Peru sits at 4.5%, Chile obtains 3.3%,  on the other hand Panama reached 5.9% and Ecuador obtained 4.5% (all results of 2011). Only Venezuela shows lack of control over inflation with 26% while Argentina continues to show problems in this area as unofficial reports indicate inflation of over 25% for 2012.

 

Costa Rica Inflation Rate (Consumer Price Index) 10 years

One last item to consider when we look at 2012 is the unemployment rate. In 2012 this index showed an increase of 0.11% sitting at 7.7%. The main reason continues to be the slow recovery from the 2008-2009 crisis that hit heavily on the construction and tourism industries (two of the major components of Costa Rica´s employment force).  Although there is an increase in this metric, it seems the behavior is natural and controlled and does not show signs of being problematic.

With all this data, it seems after all that Costa Rica (with all the problems that were advertised and broadcast in the media during 2012), follows an slow but steady development  that allows most citizens to have a positive and plenty life style. While poverty continues to be a problem for the government  (with 20% of the country below the poverty line), the current administration has been able to contained this by reducing in 1% the index in year 2012.

It is obvious that many areas are not portrait by the figures and indexes showed here, such as real development in infrastructure, educational growth, life expectancy and public health; areas that many times are not addressed properly in lieu of achieving more visible and public results; however in general terms we can´t complain of the results obtained in 2012 in times of world crisis and disconcert.

 What comes for 2013? 

This year seems to be less troublesome for the current administration. There are a couple of factors for that; one being that the government enters its “final year” (while the mandate ends on May 2014 the elections during February 2014 will create an ambiance of out-focus of the current government since late 2013 )making it less problematic not to take actions to address long-term issues, such as fiscal deficit. In other words the government will sit and wait while the mob starts chewing on who´s to come next and “fix the country”.  A second reason on why 2013 seems brighter is the recovery of the US economy bringing more demand of CR products and services including tourism, which was heavily hit during 2009 and 2010 as a result of the house-market crisis in that country. The minimum increase in the amount of tourists from US and Canada will boost the local economy in a very direct fashion.

In terms of metrics and indicators, it seems that interest rates, GDP growth, US dollar exchange rate and unemployment rates will continue to show their steady behavior in 2013 without major changes. While this may seem favorable for big corporations to invest in the country, it will not aid to smaller companies and families that need faster growth in order to be successful. In addition, if the government continues to put pressure on tax collection, many small and mid size companies will close their doors and /or will show slower growth this year than they did in 2012.

Although Costa Rica could be much better (specially in terms of direct investment on infrastructure  and education), it is clear the government made a hit on managing what can be managed of our small-blessed land.

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