Economy Begins a ‘Slow Recovery’
If the law of gravity says that all that goes up must come down, economic theory poses the opposite perspective, claiming that when things are down, in time, they will again come back up.
While Costa Rica’s economy has been down for the past 16 months, it appears that cyclical economic theory is beginning to prove itself true. Things are looking up.
And while it still may be too early to celebrate the end of the recession, indicators across several economic sectors are beginning to show considerable signs of growth.
Signs, Signs, Everywhere a Sign
Indeed, towards the end of 2009 and during the early months of 2010, most economic predictions have aligned to declare that a recovery is underway.
“For 2010, a reactivation of economic activity is expected, determined to a large extent by the recovery of exports of goods and services,” said Central Bank of Costa Rica (BCCR) President Francisco de Paula Gutiérrez in a speech in February. “The improved confidence of buyers and sellers in the international community will contribute to the improvement of the financial status (of the country) and the expansion of spending.”
De Paula’s prediction of reactivated economic activity appears to be coming true. Though February figures for the nation’s exports have yet to be released, the results from January were promising, if not overwhelmingly positive. In mid-February, the Foreign Trade Promotion Office (PROCOMER) announced that national exports in January totaled $727.9 million, a $133.5 million improvement (22 percent) over the same month in 2009. Among the several noteworthy figures announced – all compared to January 2009 – industrial exports in January 2010 saw a 27 percent increase, food exports rose by 57 percent, electronic and microchip exports went up by 40 percent, while exports of pineapples, melons, coffee and bananas all experienced improved numbers.
It was a strong start for the billion-dollar export industry, which fell by 9 percent in 2009.
“The performance of national exports reflects the positive tendency that we started to see during the final months of last year,” said Emmanuel Hess, general manager of PROCOMER. “Thanks to the diversified and strong portfolio of our exporters, Costa Rican businesses have been able to find new alternatives to diversify markets, competition and attract greater sources of investment.”
Glimpses of recovery seen during the latter part of 2009, as Hess mentioned, have remained visible in the first months of 2010. The most prominent indicator of recovery was seen in the gross domestic product (GDP), which, after falling throughout the first three quarters of 2009, increased by 1.9 percent in the final quarter of the year. Though the GDP finished the year with a 1.3 percent drop, the improvement in the final quarter indicated that things were looking up.
The upward trend has continued so far this year. Aside from the increases seen in exports, the construction, tourism and real estate sectors all have reported signs of reactivation.
In the construction sector, which some consider the area most affected by the economic crisis, projects have been sprouting up across the country.
In San José, the 16-floor InternationalCorporativeCenter is being erected on the corner of Avenida 8 and Calle 28. The investment in the complex of offices and condominiums is estimated to be $6 million. Construction has also picked up on the Pirris hydroelectric plant, on the Pacific slope in the province of San José and in the cantons of León Cortés and Tarrazú. The investment in the massive plant by the governmental Costa Rican Electricity Institute is estimated at over $250 million.
“Definitively, the construction sector is going to grow slowly over the year,” Arnoldo André Tinoco, second vice president of the Costa Rican Chamber of Commerce, told The Tico Times this week. “The recovery of the commerce sector depends on the consumption of production, which is derived from construction. Construction requires a lot of investment and, because credit was closed in 2009, people couldn’t invest. It seems that this year there will be much more credit made available by the banks.”
According to Luis Liberman, a prominent banker who will serve as the second vice president in the administration of President-elect Laura Chinchilla, construction and tourism are the sectors that have been most affected by the economic crisis. Tourism, like construction, also has shown some signs of growth in 2010. Some hotels and tourism destinations have seen an increase in traffic, while the private Costa Rican airline Nature Air has reported a positive start to 2010.
“If you take a countrywide view, we’ve seen about a 5 percent increase in the early part of the year, and that just started happening in December,” said Alexi Huntley, commercial director at Nature Air. “It was the first growth we had seen in about 12 months … December was about 3 points higher and January was about 5 points higher. It looks to be better going forward across all routes.”
Representatives of the real estate sector also have expressed guarded optimism for this year and, as the economy begins to move into “recovery” mode in the United States, it is expected that Costa Rican real estate will see significant benefits from improved economic conditions worldwide.
More Confidence, Slow Recovery
In the 25th consumer confidence survey by the school of statistics at the University of Costa Rica (UCR), positive national consumer confidence was reported at 54 percent in February, the highest it has been since November 2007.
The improvement in consumer confidence is attributed to the lowest national inflation rate since 1971, a year in which the rate was only 4.05 percent, as well as the recent increase in credit offerings by national banks, such as the Banco Nacional and Banco de Costa Rica. A year ago at this time, positive consumer confidence was measured at 38 percent. As people begin to buy again, the increased flow of money should activate slowed markets, which, in turn, should create more jobs to ameliorate the nearly 8 percent unemployment rate.
While positive figures are abundant and optimism is growing, most observers are not yet ready to place a “recovery” stamp on the economy.
“We did a survey amongst the associates of the commerce sector to get the thoughts of the businesses of the chamber,” Tinoco told The Tico Times. “The result was that the expectations for the first quarter of the year were to find stability and that in the second quarter we expect to see the beginning of a slow, slow recovery.”
However long it may take for the economic situation to improve, the mentions of “recovery” are a welcome change after nearly a year-and-a-half of hearing only the word “recession”.
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