Despite short-term slowdown, economy here is on the upswing

Earlier this month financial giant HSBC issued a raft of economic downgrades across Latin America. While these downgrades were perhaps unsurprising, considering the international situation, they are now starting to play out in countries such as Costa Rica which saw a reduction in the rate of economic growth between the last quarter of 2012 and the first quarter of 2013.

While it is too early to panic, there is a growing suspicion that outside forces may well have a short- to medium-term impact upon the overall Latin American economy.

An analysis of the news

Despite all the doom and gloom with regard to economic growth across Latin America, the Costa Rican economy still grew by 2.43 percent in the first quarter of 2013, compared to the same period in 2012.

When one looks at the performance of European and North American economies, growth of 2.43 percent in the first quarter is something which many governments can only dream about. So why are experts concerned?

The growth of 2.43 percent in the first quarter of 2013 compares with growth of 3.05 percent in the final quarter of 2012. Indeed the growth in the first quarter of 2013 is the lowest since the country emerged from recession in 2009, and some are concerned that this is the start of a worrying trend.

The recent HSBC review of Latin America suggests that regional growth will fall from 2.8 percent in 2012 to around 2.7 percent in 2013. This is primarily because of a slowdown in China, issues with commodity prices and a general opinion that domestic demand may be slowing somewhat across the region. It is more likely that there will be further downward revisions than any upward revision in the short- to medium-term, especially until problems within Europe and North America are resolved.

The two major barometers of the region, Brazil and Mexico, suffered from the HSBC downgrade to different extents.

Brazilian growth is expected to come in at 2.4 percent for 2013 against earlier forecasts of 2.6 percent while Mexico is expected to be hit a little harder, falling from 3.2 percent to around 2.9 percent economic growth. In many ways the direction of these two economies is indicative of the region as a whole and perhaps offers the best insight into the short- to medium-term outlook.

While short-term economic expectations are falling in the region, the fact is that the long-term prospects are still very positive. It is easy to forget that controlled growth in these economies is still relatively new to the region, a region which has suffered from sky high inflation in the past. The ongoing economic boom is also putting money in the pockets of workers, and experts predict a large increase in the middle classes in the short, medium and longer term.

As more disposable income becomes available to the masses, this will feed into local demand which will encourage international investment and lead to further growth in employment, placing more money in the pockets of the masses. There are some experts who believe that only the surface of economic growth has been scratched across Latin America and while Costa Rica is under some pressure, the president still believes that growth in the region of 4 percent is still possible during 2013.

In many ways the gravity defying growth in economies across Latin America lasted far longer than many people expected when set against European and North American economic turmoil. A short-term reduction in economic growth was not wholly unexpected, and, indeed, once the European and North American issues are resolved, Latin America will be in a very strong position.

Costa Rica in its own right has enjoyed a strong economy since 2009, and while it is disappointing to see expectations of a short-term slowdown, the long-term position still looks very positive. This is also reflected in the ever-growing number of expats moving to Costa Rica, and Latin America on the whole, as they look to benefit from employment opportunities, financial stability, political stability and long-term economic growth.

* Provided by the Latin American Forum.

This entry was posted in Costa Rica News. Bookmark the permalink.