OECD Economic Outlook, Volume 2025 Issue 1

Costa Rica

GDP growth will slow to 3.1% in 2025 and 2026, after 4.3% in 2024. Domestic demand will drive growth, while external demand will deteriorate following the introduction of a 10% tariff on Costa Rican goods exports to the United States, its main trading partner. Private consumption will remain solid due to incremental increases in disposable income and employment creation. Inflation is gradually rising towards the 3% target and will reach 1.8% in 2025 and 2.5% in 2026, as the gradual improvement in domestic conditions leads to a slow increase in domestic inflationary pressures.

The fiscal situation has improved but ensuring fiscal sustainability requires the strict implementation of the fiscal rule to contain public spending, along with spending reviews to improve public spending efficiency and expansion of tax bases. The monetary policy rate will remain stable as inflation is gradually approaching the target rate. Continuing to expand trade opportunities via trade agreements that open new markets would help diversify Costa Rica’s concentrated export markets.

Growth remains solid amid low inflation

Strong net exports and domestic demand boosted GDP growth in the second half of 2024. Household consumption was supported by robust credit consumption growth (8.8% year-on-year in November 2024) and the increase in real wages (5.6% year-on-year in March 2025) and employment (2.5% year-on-year in March 2024). Investment also benefited from strong FDI inflows growing by 14% over the year in December. Economic activity remains robust, with the Monthly Index of Economic Activity increasing by 3.6% (year-on-year) in March 2025, driven by both traditional (utilities, transport) and special regime sectors (manufacturing). Headline inflation continues rising slowly and reached 0.4% (year-on-year) in April 2025. Core inflation is positive but low, at 0.9% in April.

Costa Rica

1. The horizontal dashed black line indicates the target inflation rate of monetary policy, and the shaded area the tolerance band around the target (2-4%). Headline and core indicate, respectively, the headline consumer price inflation rate and the core consumer price inflation rate. The core consumer price inflation rate measures consumer price inflation excluding food and energy components.

Source: Banco Central de Costa Rica.

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Costa Rica: Demand, output and prices

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Since April 2025 a 10% tariff applies to Costa Rica’s goods exports to the United States, which account for around 16% of total exports and 47% of goods exports. Services (tourism and business services) and semiconductors, a sizable part of Costa Rican exports to the United States, are excluded from the tariff. Perceived country risk, as measured by the Emerging Market Bond Index spread, averaged 2.1% in early May 2025, slightly above the 10-year historical low of around 2% in the first quarter of 2025.

Monetary policy will maintain a neutral stance as fiscal policy remains prudent

The monetary policy rate is expected to remain at 4% over the projection period, as inflation gradually increases towards the target rate of 3%, and in line with the neutral interest rate (estimated between 1% and 1.9%). The central government primary surplus is projected to remain positive (1.3% of GDP in both 2025 and 2026), as the fiscal rule constrains current expenditure growth. The central government budget deficit is projected to reach 3.3% of GDP in 2025 and 3.1% in 2026, reflecting large public debt servicing costs of around 4.7% of GDP in 2025 and 4.5% in 2026. Public debt is expected to continue falling to 59.4% of GDP by end-2026.

Trade tensions will slow growth

GDP growth will slow to 3.1% in 2025 and 2026. Export growth will weaken in 2025 due to the US tariff on merchandise imports from Costa Rica and is expected to remain subdued in 2026, reflecting moderate global demand and higher trade costs. Private investment will soften in 2025 as increased economic policy uncertainty will negatively affect foreign direct investment inflows and public investment remains muted due to a lack of fiscal space. Private consumption will moderate as greater uncertainty negatively affects spending decisions and softens employment growth. Risks to the outlook are tilted to the downside. Increasing violence and criminality may impact negatively tourism and FDI inflows. The high degree of dollarisation of Costa Rica’s economy, with credit in dollars on the rise recently and two thirds of the dollarised debt unhedged, exposes the country to external funding and exchange rate risks, notably against the US dollar. Escalation of geopolitical or trade tensions might provoke trade disruptions and further reduce external demand. On the upside, renewed efforts to deepen trade integration might strengthen net exports.

Persevering with reforms will help ensure fiscal sustainability and support investment

The fiscal outlook has improved but the fiscal rule should continue to be strictly implemented to limit public spending and further reduce fiscal sustainability risks. Spending reviews should be introduced and tax bases expanded to increase public spending efficiency and create fiscal space. Continuing efforts to open new markets for exports via trade agreements would help export diversification. Eliminating restrictions and caps on private sector participation in electricity generation and retail supply and removing barriers to foreign investment in the electricity sector would help attract investment required for meeting the increasing demand in electricity. Reorientating vocational training towards highly demanded skills (digital and technical) and increasing the number of STEM graduates would support investment, create better jobs and enhance growth.