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Growth is projected to recover to around 3¼ per cent in 2020 and be broad-based, underpinned by both domestic and external demand. However, uncertainty, particularly surrounding the planned fiscal reforms, is weighing on growth in the near term. The projections are based on the assumption that the fiscal reforms will be implemented from 2019, with modest fiscal tightening holding back growth in 2019 and 2020.
Costa Rica’s unsustainable fiscal situation needs to be addressed urgently to avoid a further deterioration in investor sentiment. The fiscal reform bill is an important step in the right direction, but further action will be needed to restore fiscal sustainability. Structural reforms to address labour market mismatches and informality, improve education, lower infrastructure gaps and strengthen competition would boost productivity and reduce inequality.
Source: OECD Economic Outlook 104 database; and Costa Rican Ministry of Finance.
Economic Assessment of Costa Rica (survey page)