At a time of international fragility, the Costa Rican economy continues to stand out for its resilience and capacity for growth. Despite global instability, with wars in Ukraine and tensions in the Middle East, as well as the escalation of geopolitical disputes between China and the United States, Costa Rica achieved growth of 5.1% in 2023.
Although moderation is anticipated for 2024 and 2025, with rates expected to exceed 3.5%, the country continues to take advantage of opportunities to maintain sustainable economic development, despite external and internal challenges.
This current economic panorama, the risks and prospects for the remainder of the year and for 2025, were shared by the renowned economist and former president of the Central Bank of Costa Rica (BCCR), Rodrigo Cubero, in a conference organized by the National Bank (BN ) this Wednesday, a day that included the participation of 80 Costa Rican CEOs, clients of the institution.
“Despite the fact that the international economy is going through a moment of fragility, we have seen that the Costa Rican economy has continued to grow at good rates. This is due, in part, to a projected slowdown for the North American economy, which continues to be our main trading partner, source of investment and tourism. Also influencing is the appreciation of the exchange rate, which is affecting some sectors, and the normalization of household consumption, which was very high in 2023,” said Rodrigo Cubero, former president of the Central Bank.
In general, there are risks surrounding these outlooks, both due to the external environment and what could happen with interest rates, inflation and raw material prices. There are also risks in the national economy, such as insecurity, the political situation, and climate and fiscal issues.
Exchange rate behavior
The exchange rate in Costa Rica has been the subject of intense discussion on the national agenda due to its marked movements in recent years. Since mid-2022, the exchange rate has fluctuated significantly, reaching almost ¢700 per dollar at its peak and falling to around ₵500 last April. Currently, it is at levels close to ¢525 in the interbank market.
These movements have been influenced by various factors, including the supply and demand of currencies, as well as interest rates both nationally and internationally.
Against this, there is still the strength of exports, foreign direct investment and tourism, putting some downward pressure on the exchange rate. However, on the net, there is projected to be a gradual upward movement in the price of the dollar, possibly remaining around where it is in 2024 and a little above in 2025.
“If there is very strong pressure to increase the exchange rate, the Central Bank will possibly move its monetary exchange rate policy instruments to prevent a very disorderly, rapid and violent adjustment in the exchange rate, especially upwards, endangering its inflation target. We would see an exchange rate that will possibly remain with a slight upward trend, but fluctuating at levels that this year could range between 520 and 540 colones per dollar,” added Cubero.
The interest rate in Costa Rica in colones is highly determined by the Monetary Policy Rate (MPR) of the Central Bank. At this time, the MPR is at 4.75% and the Central Bank has expressed that it does not anticipate that it will move before the United States Federal Reserve does so, which is expected from September.
“Possibly starting in September of this year, we will see a Central Bank of Costa Rica more willing to continue lowering its monetary policy rate. This should continue to exert some downward pressure on interest rates in the market, both in rates on deposits and in rates on loans in colones,” explained Cubero.
Regarding interest rates in dollars, the economist explained that the fundamental thing is for the United States to reduce its monetary policy rate between 25 and 50 basis points. So, an additional drop of around 100 basis points would be expected in 2025. Therefore, in general, in the world and in Costa Rica, interest rates in dollars should show a downward trend in the next 18 months.
Impact on the business sector
The impact of technological disruptions, an aging population, geopolitical fractures, consumer and investor perceptions, and climate shocks are affecting each industry differently. However, sectors such as tourism, real estate, microprocessors, green energy, goods and services for the elderly population, and thematic investments present significant opportunities.
In this context, the need for continuous adaptation and the adoption of new technologies will be essential for companies. Furthermore, exchange rate volatility suggests that companies should avoid speculation and focus on reducing their exposure to currency risk.
That is why sustainability and triple-utility business models that generate economic, environmental and social value become more important for the generation of new businesses. Companies will need to continue to monitor the environment carefully, focus on improvements in efficiency and productivity, and consider measures to secure their physical and digital assets.
“Within the framework of our 110th anniversary, we have been setting up these types of spaces to share with our clients, suppliers and other interest groups, to celebrate with them 110 years of success and achievements, but also to deeply thank them for their trust and for allowing us to accompany them during all these years,” said María Brenes, Director of Institutional Relations of the BN.
