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Costa Rica’s Economy Grows, But Faces Domestic Threats

Article Summary:

The Costa Rican economy has regained momentum after some slight signs of economic recovery in the U.S. and other markets, but domestic factors could become serious obstacles to growth this year.

Photo Credit: El Financiero

Original Article Text From El Financiero via Google Translate :

Economic Activity Gathers Momentum but Local Factors May stop It
The rate of economic growth last quarter will be reduced. Obstacles on the track and the high rate scenario and the approval of new tax plan to announce a possible dynamic brake.The rate of the economy, measured by the Monthly Economic Activity Index (IMAE) was 6.4% in January by variation trend cycle.

One thing that was even greater than in the entire last quarter of 2011 (6.1%).The good news came after the economic recovery generated observed in both the U.S. and Europe. The Costa Rican economy reacted immediately to the improved international environment and as shown in January preceding the annual growth of exports was 19%, the highest rate since 2007.

Seen by the IMAE, the impulse comes from the contribution by 85% of the manufacturing and services.Optimism was even exceed growth projections established by the Central Bank by 2012 -2013 macroeconomic program from 3.8% at the end of 2012.The financial industry, for example, projects a higher figure could exceed 4% this year .

The National Bank General Manager, Fernando Naranjo, said the momentum is felt in the credit placement rates that have remained very dynamic. If last year the growth of the placement was 14%, this year, at least the largest bank projected a growth of 16%. They expect a more dynamic 2012.

Brakes Optimism, however, after a dull scenario of rising interest rates. So far in 2012 the Basic Rate Passive (baseline) rose 1.25 percentage points by definition a movement that slows growth .The issue of rates joins the rapid pace of tax reform bill , which according to economist at the University of Costa Rica, Ronulfo Jimenez, could have a chilling effect on the economy, because more resources will go to taxes and less productive investment.

The Central Bank thinks otherwise , in its projections on the effect of viewing a fiscal reform economic growth in 2012 of 4% compared with 3.8%. For the Central tax reform is synonymous with greater growth real and more jobs .The reason to justify their position is the fact that the reform alivianaría the burden on interest rates (giving them a rest to the floor) and therefore have more resources available to the private sector.

If rates come down, growth projections could raise more and result in much more positive projections of the expected performance of the economy earlier this year.

Four months later, the 2012 could let loose paint, and projected growth in January were 3.3%, according to survey of EF, could change.The direction of the momentum can not be assured, but there are incentives to reverse the slowdown that showed little variation in the index in January. can say that having a fall is not steep.

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From El Financiero

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