GDP will slow from 4% in 2024 to 3.5% in 2025 and 3.6% in 2026. High business confidence, large FDI inflows and increases in household income will support domestic demand. Export growth will remain strong over 2024-2025 but will soften in 2026 as growth in the United States, the main trading partner, moderates. Headline inflation is expected to rise to 1.6% in 2025 and 2.6% in 2026.

Fiscal policy will appropriately remain restrictive, as the fiscal rule contains public expenditure growth. Monetary policy easing will come to an end, as headline inflation rises towards the tolerance band. Reorientating vocational training towards highly demanded digital and technical skills, expanding STEM programmes and the number of graduates, and broadening the coverage of early education and care for children below four years would help meet labour market demand and support higher female labour participation.

Strong domestic demand boosted GDP growth in the first three quarters of 2024, supported by record high FDI inflows and confidence. The pace of growth of economic activity is slowing but continues to be robust, with the Monthly Index of Economic Activity increasing by 4% (year-on-year) in September 2024. Headline inflation remains negative at -0.8% (year-on-year) in October 2024. Core inflation remains low at 0.5% (year-on-year) in October 2024. The labour market has improved, with the unemployment rate at 6.6% in September, but the labour participation and employment rate, at 57.3% and 53.5% respectively in September, remain below pre-pandemic levels. Foreign direct investment inflows strengthened in the first half of 2024 supporting formal employment. The country risk, measured by the Emerging Market Bond Index spread, is close to its lowest level in the last 10 years.

The monetary policy easing cycle is assumed to come to an end in 2025, with the policy rate projected to reach 3.75%, as inflation starts slowly rising towards the 3% target. The central government primary surplus is set to remain positive (1.6% of GDP in 2025 and 1.8% in 2026), as the fiscal rule constrains current expenditure growth. The central government budget deficit is projected to reach 3.2% of GDP in 2025 and 2.8% in 2026, as debt servicing costs remain large (4.7% of GDP in 2025 and 4.5% in 2026). Public debt is expected to continue reducing and to fall below 60% of GDP by end-2026.

Growth is projected to slow to 3.5% in 2025 and 3.6% in 2026. Private consumption will moderate in 2025 but pick up again in 2026, as real wages gradually strengthen disposable income. Solid economic activity will continue to support job creation, though employment is projected to increase slowly and the labour participation rate is expected to remain below its pre-pandemic level. Private investment will remain strong over the next two years, supported by large foreign direct investment inflows, though public investment will remain muted due to contained spending to meet the fiscal rule. Exports will moderate in 2026 along with economic conditions in the United States, the key trading partner. Recent increases in credit in foreign currency (around 32.6% of the total credit stock), and the intervention of a credit cooperative in May 2024, point to financial vulnerabilities, including to sharp fluctuations of the exchange rate, that call for continued efforts to foster financial supervision. On the upside, renewed efforts to deepen trade integration might strengthen net exports.

Supporting female labour force participation and growth will require expanding the coverage of early education and care for children below four years and extending school hours for children in preschool and primary school. Reorienting vocational training towards skills in demand and increasing STEM programmes and the number of graduates would reduce skill mismatches and shortages and help attract additional foreign direct investment and benefit from trade openness. Providing targeted support to underperforming primary and secondary students, prioritising those from vulnerable groups, would also improve equality of opportunities. To achieve net carbon neutrality by 2050, Costa Rica should reduce emissions in the transport sector by strengthening the public transport network and the electrification of transport, and continue to expand renewable energy sources.