Beautiful Costa Rica in Economic Numbers
There is no doubt that Covid-19 is severely affecting the world economy, and Costa Rica is no exception. Although the government has managed this pandemic quite successfully and seemingly without massive contagion or a high number of deaths, its economy has not escaped reality.
The behavior of the national economy showed a downward trend during these past three years, but it always remained on the positive axis. At the end of 2019, the country was experiencing signs of recovery, and by 2020, economic growth was estimated at 2.5%. This represented an increase of a staggering 19% over the previous year.
But the Coronavirus would have a severe impact on the country’s economy.
The partial or total closure of activities, both within the country and around the globe, has led the government to re-evaluate economic growth targets for this year. On April 24th, following national and world events, the figure for this year was estimated at a contraction of -3.6%. In the words of the president of the Central Bank of Costa Rica, this is the biggest drop in economic growth since the early 1980s.
This situation presents a challenging time for employment in the country. By December 2019, unemployment had increased to 12.4%. The effects caused by Covid-19 have led the government to predict that the unemployment figure may reach 20% this year.
Effect on the Costa Rican Economy – tourism
One of the areas that suffer the greatest impact of Covid-19 is the tourism sector, which, in recent years, has experienced constant growth, both in visitor count and income. At the end of 2019, this sector represented 8.2% of GDP, employing some 211,000 people directly or indirectly associated with tourism, which is equal to 8.8% of the country’s total workforce.
Hotels have reported a 90% drop in their reservations. Under this scenario, the suspension of contracts, reductions in working hours and layoffs, presage a highly complicated year, both for the sector and for the state coffers. Tourism is expected to experience a 45% contraction this year, and revenues of around $ 2.4 billion will be lost.
Although the government has had notable success in controlling the Corona virus, the gradual opening of activities in the country will not go hand in hand with parallel actions in the rest of the world. There will be more fierce competition for tourists, as countries whose economies depend on tourism will implement aggressively competitive offers and promotions to entice customers.
Status of Other Sectors in the Costa Rican Economy
Although the remaining areas of the economy will suffer less impact than tourism, their contraction will be meaningful:
- Construction -8.7%,
- Wholesale and retail trade -5.3%,
- Transport and storage -5.0%,
- Manufacturing -4.8%).
However, the recovery process may be faster than expected, because businesses, merchants, and workers will find themselves focused on regaining the position they were in before the pandemic.
The national government has implemented a package of economic measures aimed at assisting people who have lost their job or have had their workday reduced. Various financial aids were approved for the productive and service sectors in order to keep them active, and thus make it possible to maintain payrolls and not impact unemployment figures as much.
Although the outlook may seem quite complicated, Costa Rica has what it takes to get ahead of the impact of Covid-19. Its tourist infrastructure, its natural beauty, the friendliness of its people, and a privileged tropical climate are the foundation for its faster than expected recovery.
by: Román Vergara