The productive sector in Costa Rica will face similar scenarios to those faced in 2015. However, the results will depend on the approval of fiscal package (expected to be approved for a long time now) and some external factors. Macro prices will have a similar behavior to those of 2015, and the economic stability will prevail. The biggest thread continues to be the fiscal deficit, which, according to some economists, will come close to 6.6% in 2016.
Many economist believe that even if the tax package is not approved in 2016 the economic situation won´t be as bad as expected. However, in 2017 the situation would be severe. So this means, that if in year 2016 the expenses continue to grow over the income then the negative effects will be felt in 2017.
Prices for raw materials overseas will still remain low, but it is unknown how long this situation will last.
The productive sector and the Costa Rican Congress are in expectation of a proposal to reduce expenses which will complement the projects presented in 2015 to increase Government income; mainly by increasing income tax and setting in place a new aggregated value tax (IVA) – this last one does not exist in Costa Rica to date.
The recently announced increase in interest rates by the US Fed won´t cause a big impact in Costa Rica in 2016 as the Central Bank already announced that increase has been already discounted.
As for pricing index and production, the results for 2016 will be close to those of 2015, unless of course unexpected events arise. Inflation will jump up from the extraordinarily low levels it reached in 2015, but it will be closer to the lower end of the expected range by the Central Bank; the expected inflation by this authority is 3% to 5%. So, if the behavior is as expected inflation will be closer to 3% in 2016. Along this line, the prices for raw materials are expected to increase a little bit, which will put more pressure on the fiscal deficit.
Exchange rate is always an important matter, especially for foreigners looking to invest in Costa Rica. The dollar exchange rate for 2016 in Costa Rica is expected to be in between 510 and 545 colones per dollar. The exchange rate won´t experience in 2016 the factors which helped it decrease in 2015 such as money reserves from Eurobonds or the decrease in oil prices or the transfer of portfolios in dollars to colones.
The Tasa Básica Pasiva (TBP), which is the Costa Rican base interest rate to calculate the value of loans, will decrease mainly to the implementation of the metodological exchange system which will go into effect in February.
The growth of the GDP is expected to be a little under 4% which is the goal of the Costa Rican Central Bank. This estimation is very positive because it will move away from the low levels it experienced in 2015 which, had not been seen in the country in the prior 6 years.
In summary, for 2016 the economic projections for Costa Rica are as follows:
- GDP – Highest 4.3%. Lowest 2.5%
- TBP – Highest 6%. Lowest 3.6%
- Exchange Rate – Highest 545 CRC. Lowest 510 CRC
- Inflation – Highest 5%. Lowest 1%
* This post is a summary of an article from El Financiero, a Costa Rican financial newspaper.