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Costa Rica's export growth slows amid changing financial conditions

Costa Rica is poised to witness a near 7% increase in exports by year's end, though the sector's expansion is experiencing a deceleration due to shifts in global and domestic interest rates alongside fluctuations in the dollar exchange rate. The slowdown is observable across entities operating within free zones and those under the definitive regime, with the former reporting a 9.4% growth in the first half of the year—a stark contrast to the 25.8% growth during the same period in 2023. Similarly, companies in the definitive regime saw a growth of 2.1% in the first half of 2024, a decrease from the 5.9% growth recorded last year.

The depreciation of the U.S. dollar by almost 22% this year poses challenges for exporters, particularly affecting profit margins when expenses are incurred in colones. The Central Bank's reference rate for the dollar is currently set between ¢514 for buying and ¢521 for selling, with expectations for the exchange rate to stabilize between ¢530 and ¢540 per unit by the end of 2024.

High interest rates continue to suppress consumer spending, impacting both local and international markets. According to Greivin Salazar, an economist at Universidad Nacional, the combination of an adverse financial climate and the appreciation of the colon has diminished the competitiveness of Costa Rican products globally. Despite these challenges, foreign sales have seen a growth of 7%, amounting to an increase of US$774 million and totaling US$11.3 billion. The primary exports during the first seven months of 2024 include medical devices, pineapple, banana, syrups and concentrates for soft drinks, and green coffee.

Financial analyst Daniel Suchar highlights that the growth is largely attributed to the performance of free trade zones and manufacturing companies, though he notes a projected slowdown towards the year's end, particularly affecting the agricultural sector. Looking ahead to 2025, the outlook remains cautious with only a modest recovery in global demand anticipated, contingent on the resolution of geopolitical conflicts and economic tensions in critical markets. The deceleration in export sales has raised concerns among economists and sectors reliant on both exports and imports, prompting calls for a higher exchange rate to bolster competitiveness.

Source: Q Costa Rica

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