Weaving growth, challenges and restoration

Costa Rica’s macroeconomic outlook has improved significantly in recent years, supported by structural reforms and robust external demand. Over the last decade, economic growth has outpaced the Latin America and Caribbean (LAC) average (+3.6% vs. +3.0%), driven by foreign direct investment and a thriving export model concentrated in free trade zones. These zones now represent 15% of economic activity, produce 66% of exports – led by the medical equipment, electronics and food sectors – and contribute 11% of national employment, offering wages 46% higher than the national average. However, a significant productivity gap persists, with levels still 57% below the OECD average despite a +30% increase over the last decade.

Economic growth has remained strong, with GDP expanding by +5.1% in 2023 and an estimated +4% in 2024. Growth continues to be driven by dynamic export sectors and a recovered tourism industry. Looking ahead to 2025, we forecast growth to stabilize at +3.5%, reflecting steady FDI inflows and robust performance in high-value manufacturing and services. The government’s successful fiscal consolidation, including the 2018 tax reform and the completion of an IMF program in 2024, has also helped return public debt to a sustainable path. Structural primary deficits of 2.6% of GDP have shifted to surpluses of 1.8%, underscoring progress in stabilizing the economy. Downside risks to our outlook include repatriations from the US that directly or indirectly impact the country, increased violence and higher security risks.

Inflation has remained subdued, averaging around 0% for two consecutive years, but is expected to return to a healthy range of 2-2.5% over the course of 2025. The monetary policy environment has supported these trends, while external risks, such as global commodity price volatility or adverse weather events, remain manageable. Sustained growth and further structural reforms will be critical to narrowing the productivity gap and bolstering long-term competitiveness.

President Rodrigo Chaves has pursued a broadly market-friendly and orthodox economic agenda but faces significant challenges in governance. His efforts to shrink the size of the state and combat a surge in violent crime are likely to encounter resistance from unions and left-wing parties, particularly given the administration's lack of a legislative majority and strained executive-legislative relations. In late 2024, Chaves unveiled plans to lift the country’s 14-year ban on open-pit mining, challenging its long-standing environmental reputation. The proposal focused on the Crucitas gold deposit, located approximately 200 kilometers north of San José near the Nicaraguan border. The site has been inactive since 2010, when authorities revoked the concession to a Canadian firm and instituted a nationwide ban on open-pit mining. The proposed legislation seeks to grant Crucitas a one-time exemption from the ban, allowing the site to be auctioned. Despite large-scale opposition across society, Chaves’ enduring popularity ensures his endorsement will carry substantial weight in the 2026 presidential election, even though he is ineligible to run.

Poverty, challenges in education, rising insecurity and an aging population represent long-term challenges. Poverty has remained stagnant over the past decade (22% in 2023 vs. 21% in 2010), and income and territorial inequalities persist, particularly in peripheral regions with lower socio-economic indicators. Education, a key driver of social mobility, faces significant shortcomings despite public spending exceeding the OECD average (6.3% of GDP vs. 5.1%). Outcomes fall short, with deficits in mathematics and reading equivalent to four years behind the OECD average and the lowest secondary school graduation rates in the organization. High youth unemployment (22% vs. 11% in the OECD) reflects a mismatch between education and labor market needs. Insecurity has surged, with the homicide rate reaching a historic high of 17.2 per 100,000 inhabitants in 2023, close to the LAC average of 19.9. Young people are disproportionately affected, accounting for 45% of homicide victims, driven by the interplay of poverty, limited job opportunities and low educational returns. Meanwhile, Costa Rica’s rapidly aging population risks further straining public pensions, healthcare systems and social protection networks, amplifying socio-economic challenges.