Central Bank Issues Revised 2010 Economic Outlook

August 6, 2010

Rodrigo Bolaños, president of the Central Bank of Costa Rica (BCCR), provided an analysis last Thursday of the nation’s economic status through the first six months of 2010,with predictions for the remainder of the calendar year.

Bolaños revised the BCCR’s inflation prediction, foreseeing an increase in consumer prices of 5 to 6 percent by year’s end, a shade higher than the 4 percent goal set in January. In the first six months of the year, national consumer prices have risen 3.4 percent, primarily due to increased prices and tariffs on goods and services traded in the international market, as well as heightened tuition costs of universities and private schools. In the past 12 months, consumer prices have risen 6.3 percent.

Using the Monthly Economic Activity Index (IMAE), BCCR concluded that the national economy has grown 5.2 percent through the first six months of the year, thanks to larger revenue margins in the manufacturing, agriculture and service industry sectors. However, BCCR also reported that revenue earned in the construction sector fell 3.6 percent. The bank expects the sector to finish the year with an estimated 6 percent loss in profits compared to 2009. The diminished growth in construction was attributed to a leveling out of the construction boom from 2005 to 2008, when the sector reported annual growth of about 20 percent, and to a decrease in construction in free zones.

Bolaños also addressed the fiscal deficit, which BCCR predicts will finish the year at 5.2 percent of the national gross domestic product (GDP). The deficit currently represents 2.18 percent of the GDP, although both the BCCR and Finance Ministry have projected it will rise to about 5 percent by year’s end.

As for the exchange rate, Bolaños said the current band system used to control the fluctuations of the value of the colón will remain unchanged, at least in the short term.

–Adam Williams

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