UCR researchers see no reason for economic gloom in Costa Rica during 2012.

Although several well-known economists in the country have painted a gloomy picture in 2012, the Institute for Research in Economics (ICSI) at University of Costa Rica (UCR) expects the economy to remain stable.

The prognosis of ICSI puts the Costa Rican economic growth between 3.5% and 4.5% this year, similar to that recorded in 2011.

According to researchers at ICSI, there are external threats that could affect the country’s economy and they do warn about the need for the country to resolve outstanding issues, such as tax reform.

The estimate made by the ICSI for 2012 takes into account a possible slowdown in the U.S. economy, with growth of 2.2%, stagnation in Europe and a slowdown in emerging economies.

“In that context, it is considered that the performance of the Costa Rican economy is positive and although it had the” rebound “effect on the extent of other Latin American countries to overcome the crisis, during the last two years Costa Rica has maintained a rate of similar to the historical growth, “said economist Rudolph Lucke.

For the first quarter of 2012, the estimate of economic growth ICSI located between 4% and 5%. This, according to Lucke, could contribute to reducing unemployment, although not significantly.

The economist also pointed out that the trade deficit (difference between exports and imports) has increased significantly during the past two years, in 2011, reaching $ 5,811.1 million, 40% more than in 2010.

However, Lucke explained that this deficit is not as worrisome because the country is receiving funding by Foreign Direct Investment (FDI) and growth that have been showing increases of services in the country.

The country’s exports in 2011 grew 11%, two percentage points higher than in 2010, where the food industry was the highest growth with 17% and North America remains the main destination for Costa Rican production, receiving 42.6% of total shipments.

In regard to interest rates, the researcher noted that since 2009 these indicators have remained stable in a range between 7% and 8.5%. However, the government’s need for financial aid could cause the basic borrowing rate to increase from 8% to 9% this year.

This issue is particularly sensitive, as it directly affects payments to be made by Costa Ricans who have acquired some debt with variable interest rates and could also increase pressure on inflation.

Inflation in 2011 grew by 4.74%, slightly less than 5% recorded in 2010, which according to the ICSI was due to a change in the outlook for oil prices and food. Those in the first half of the year were high and for the second half, had a significant decline.

During 2012, the ICSI expected inflation between 4% and 6%, because we do not see significant price pressures, given the global economic slowdown, but this picture could change as political tensions increase in the Middle East and the problems with approval of the Costa Rican tax reforms before the end of the first half of the year.

The UCR Institute calculated that the effective date of the Value Added Tax (VAT) of 14% and 2% tax on private health services and education would cause a slight slowdown in the economy.

The effect of the new taxes will depend on the time of year that they are approved and put into effect. Additionally, the ICSI clarifies that it’s estimate do not consider the possibility of tax evasion, so that the maximum effect in increasing the prices of goods and services would be up 3.5%.

On the other hand, ICSI also did its usual quarterly survey of business prospects for the first quarter of 2012, for which consultations are conducted at 510 establishments in various sectors of the economy.

The expectation of employers with respect to the number of employees, who will enter the workforce in the first months of the year, shows great stability, since 64.7% expect no change, while 23.7% expected new hires and only 10 % plan layoffs.

The sector most optimistic is the construction industry, since 60% of respondents expect no change and 40% did announce recruitment, which is explained by the increased demand of this sector during the dry season.

By contrast, the retail sector predicts the highest number of layoffs; at (18%). While another 21% say they will hire more staff and 61% say that they will remain the same.

These figures mean that the net employment trend calculated (by subtracting positive and negative responses) in this survey is located in a +13.7%, which is the third highest of the eight studies made by the ICSI so far.

When consulting on sales or production expectations for the first quarter, 57% of employers expect increases, with the highest expectation of the “other services” sector with 62%.

The construction sector has the least expected increase in production compared with other sectors (51%), but which outlines more stable and that 38% expect no change and only 4% say their sales will decline.

In general, all sectors expect to increase their profits and increase their competitive position or at least remain the same, except for the trade sector, which is the only one that shows a decline in their optimism about the fourth quarter last year.

With respect to investments, more than 80% of employers say that will not make new investments from January to March, while the group of “other services” is planning for a 15.8% increase in investments.

This information was obtained from Semanario Universidad.

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