The Costa Rican economy closed in 2023 with continued decline

Costa Rica's economy showed year-on-year growth of 4.4% in December 2023, mirroring a slowdown at the end of the year. According to the monthly index of economic activity (IMAE) published by the Central Bank of Costa Rica (BCCR) on February 9, the downward trend began in July.

In June last year, the indicator showed that the year-on-year variation reached 6.4%, but from that moment the reduction started.

The report's findings reflect a slowdown in activity in the special regime that includes free zones, which had 10.4% year-on-year growth last December, but was 19.4% in the same period in 2022. In the final regime, there was a 3.3% increase at the end of last year.

The slowdown in the special regime is observed from June 2023, when it reached 20.2%, compared to 22.1% in May. From that date to the end of the year, economic activity in the sector experienced a reduction of 11.7 percentage points (pp).

The BCCR report noted that expansion in special regimes manufacturing activity continues at a double-digit rate, “albeit at a slower pace given the significant momentum of 2022.”

On the other hand, a deceleration in the pace of activity in the categorical regime covering companies subject to income tax was evident till September, at 4.7% after the 4.8% recorded in August. In this way, the IMAE of this regime has reduced by 1.5 percentage points in the last four months of 2023.

The publishing company highlights that the firm's regime makes a significant contribution to IMAE, representing 64.3% of economic activity. Its growth is mainly due to trade, transportation and storage, as well as manufacturing. He also noted modest increases in general administrative services and construction.

Economist Adriana Rodríguez, General Manager of Agobo Stock Exchange, pointed out that the moderation in IMAE's growth rate in free zones is due to the very high base effect, with earlier than average growth.

However, he pointed out that the sector also reflects the effects of decisions taken by the parent companies of these companies and an increase in production costs due to an increase in the exchange rate.

As for the final regime, although it has maintained positive figures, it has seen limited growth since September, a key sector for employment generation in the country.

Conduct of Departments

The BCCR report estimated that the agriculture sector grew by 2.3% in December, which is equivalent to an increase of 0.7 pp compared to the same month of the previous year. The increase was driven by domestic demand for livestock products such as eggs, meat and milk.

However, there was a decrease in agricultural production (-2.8%), which the central bank attributed to adverse weather conditions caused by the El Nino phenomenon, which affected key areas producing vegetables, roots, tubers and short-cycle crops. Potatoes, as well as coffee.

As for manufacturing output, which includes the special and firm regime, it increased by 6.6% in December, which represents an increase of 1 pp compared to December 2022. The BCCR highlights that production has been sustained under the firm regime since May 2023. 1.9% increase in December.e.

This variation is attributed to increased production of food items such as meat, fruits and vegetables, poultry, milk and beverages. Production of clothing and paper products also increased.

Output under special regimes grew 12.7% in December, reflecting a 5.7 pp decline compared to the same month in 2022. In this segment, the largest growth was recorded in the textile, apparel and manufacturing sector. Skin (28%), followed by medical and dental instruments such as heart valves and catheters (18.8%), according to the report.

Construction registered a year-on-year growth of 2.9%. BCCR highlights the decline in construction of shopping malls and warehouses, non-residential vertical buildings and commercial complexes.

It also points to a decrease in middle-income housing construction in contrast to an increase in social housing and infrastructure for private real estate developments, mainly in Guanacaste.

In the auto trade and repair sector, the highest increase of the year reached 6.1%. The sector maintains the monthly acceleration observed from February 2023 onwards. Sales of automobiles, marketing of pharmaceuticals and food products, and growing demand for electrical and electronic equipment stand out.

Services reflected an increase of 3.5%, a rate 1.7 pp lower than in December 2022.