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    Costa Rican Households and Companies would recover in 2021 part of the income lost last year

    The recovery process will be slow and gradual

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    2021 will bring for homes and companies the recovery of a part of the income lost in 2020; however, not enough to reach pre-COVID-19 levels. All projections indicate that Costa Rican production will grow in 2021. The most pessimistic is that of the Organization for Economic Cooperation and Development (OECD), which foresees a growth in production of 2% and the most optimistic that of the World Bank, 3.1%.

    The official, so far, is 2.6%, but the Central Bank will publish the new projections for 2021 and 2022 in January. None of the projections exceed the expected drop for 2020, which, according to the official forecast, will be around 4.5%.

    Gross domestic product is the monetary value of everything that companies and people produce in the country in a period and, therefore, a fall implies lower sales and lower income, as well as an increase in it translates into more employment and income.

    2020 closes with signs of recovery

    The numbers towards the end of 2020 point towards an improvement in production and employment, but not the same for all. According to the monthly index of economic activity (Imae), an indicator of the volume of production of goods and services in the short term, until October the part of the production carried out by companies in the Free Trade Zone and other special regimes has recovered rapidly.

    In October 2020, said regime reached the level of production it had in March. This regime even grew in employment this year. The Costa Rican Coalition of Initiatives for Development (Cinde) reported that in 2020, multinational companies generated 19,806 new jobs; 18.4% more than the previous year.

    This sector promises to continue growing in 2021, especially due to Intel’s announcement that its test and chip assembly operation has returned to Costa Rica with an investment of $ 350 million in three years and the hiring of 200 people. Therefore, those who have a second language and knowledge in technical areas are more likely to find work in 2021.

    Highly skilled job opportunities

    According to the information of the job offers of the employment.com, 71% of the 10,733 offers made through this platform, between January and November 2020, were for positions that required, at least, a university technician and 70% requested a second or even a third language.

    In companies that do not belong to the special regime, recovery seems slower. Its production, according to the Imae, fell with the Pandemic and remains quite stagnant until October. Those who work for this definitive regime, but in the public sector and whose income was not affected by the Pandemic, would have less growth in the future due to the fact that the Government debt exceeds 60% of production and therefore the active fiscal rule salary limitations.

    By industry, some such as information and communications are growing and have faced a greater demand due to the Pandemic; however, there are others such as accommodation and food services, transportation and construction that fell with the Pandemic and had not been lifted.

    Requirements for recovery

    Specialists agree that for the recovery to be maintained, two requirements are necessary: find a solution to the problem of public finances to strengthen confidence and advance the vaccine.

    “What is going to be fundamental for the country is to continue working to approve the fiscal adjustment within an agreement with the International Monetary Fund, as we have insisted, to give the international agents credibility and confidence regarding that commitment that the country has with the fiscal adjustment”, indicated the President of the Central Bank, Rodrigo Cubero.

    Slow recovery

    The former President of the Central Bank and former Minister of Finance, Francisco de Paula Gutiérrez, trusts that there will be recovery, but it will not be quick due to the internal problems that the country has.

    “In 2021 we are going to have a recovery, especially since the vaccination process has begun, it will greatly reduce the need to carry out closures, and which greatly affects the economy, but it will not be a very fast recovery because, if we removed the Pandemic from the game, this past year we would have had growth very close to zero or very meager, because we have a very complicated fiscal situation,” de Paula said.

    One element that clouds the recovery is the loss of two loans from the Inter-American Development Bank (IDB) at the end of 2020 (files 22,131 and 22,132 for a total of $ 515 million). According to Cubero, who last November had urged the approval of international loans to bring tranquility to the markets, the non-approval of such loans generates negative impacts on different economic variables.

    Not having these credits reduces the possibility of savings that these loans would have given and if the Government must now obtain those resources in the domestic market, it would push up rates, which affects consumption and investment and therefore production.

    And on the other hand, it introduces uncertainty about the fiscal adjustment, which affects expectations and also the possibility of growing more. Cubero commented that this is one of the variables they analyze for the new growth estimate for 2021.

    Some positive news

    However, there is also positive news for growth such as the advance in vaccination, the increase in the arrival of tourists and the reopening of the Intel manufacturing plant. Specialists agree that reaching the level of production before the Pandemic will take at least two years and lowering unemployment will also take time. The OECD estimated that in 2020 unemployment will be 19.9%, in 2021 it will be 19.3% and it will be until 2022 when a drop of more than 14.6% is achieved.

    Resonance Costa Rica

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