Costa Rica among countries with the lowest growth this year in Latin America: World Bank

QCOSTARICA – Costa Rica is among the countries with the lowest expected production growth in Latin America and the Caribbean this year, according to the World Bank’s new semi-annual report for the region titled: “Back to Growth”, released on March 29.

The World Bank forecasts Costa Rica’s production growth of 2.6%; 3.3% and 3.1% for this year and the next two years, respectively.

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The 2.6% is lower than the average of 4.4% in Latin America and the Caribbean, excluding Venezuela.

In 2020, Costa Rica was among the countries whose production fell the least with the pandemic. That year, gross domestic product (GDP) fell 4.6% according to the World Bank; lower than the Latin American and Caribbean average by a reduction of 6.7%.

The increase in production estimated for this year by the international organization coincides with the forecasts of the Central Bank of Costa Rica and the 3.3% for 2022 are slightly lower than those expected by the local authority, of 3.6%. .

The World Bank explains, in its report, that forecasting the region’s economic growth in 2021 is a challenge because a lot depends on the evolution of the pandemic in the coming months.

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“The development of safe and effective vaccines in just one year after the first outbreak of covid-19 is an unprecedented scientific achievement. But producing vaccines on the scale needed to stop the pandemic is a challenge, ”the World Bank said.

With low doses and limited capacity, vaccine launch is slow in most of the region, implying that herd immunity cannot be achieved until the end of the year. In addition, it is also not known how effective the vaccines will be against the newer variants of the virus.

The repercussions of the pandemic in the region are serious, according to Carlos Felipe Jaramillo, vice president of the World Bank for the region of Latin America and the Caribbean.

“The damage is severe and we see a lot of suffering, especially among the most vulnerable (…) but we must always look forward and take this opportunity to make the necessary transformations to ensure a better future,” said Jaramillo. .

The sharp contraction caused by the pandemic last year has had enormous economic and social costs. The unemployment rate in general has increased and poverty has skyrocketed, although in some countries the massive use of social transfers has largely helped cushion the social impact of the crisis, the agency said in a statement.

The Covid-19 crisis will have a long-term impact on the economies of the region. Lower levels of learning and employment are likely to reduce future incomes, while high levels of public and private borrowing can strain the financial sector and slow the recovery.

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World Bank output growth forecasts

Not all negative

There are also encouraging international developments and new opportunities.

First, while world trade in services has declined significantly, merchandise trade has held up relatively well. And given the rapid recovery in East Asia and China in particular, most commodity prices are now higher than before the COVID-19 crisis, which is benefiting countries that export these commodities.

Second, remittances to the region have also increased compared to the period leading up to COVID-19. This is encouraging, given its enormous importance to the standard of living in several countries in the Caribbean Basin and Central America.

A third positive development has been the continued access to international capital markets by most countries in the region.

“In fact, foreign lending increased during the pandemic, which contributed to supportive economic policies despite limited fiscal space,” the report said.

“As economies rebound this year, some sectors and businesses will gain and others will lose,” said Martín Rama, World Bank chief economist for Latin America and the Caribbean.

“This pandemic has led to a process of creative destruction which can lead to faster growth, but can also increase inequalities within and between countries in the region,” Rama added.

For example, hotel and personal services can suffer long-term damage, although information technology, finance and logistics develop.

In the medium term, the gains may be greater than the losses. The greatest transformation could come from accelerated digitization, which could lead to greater dynamism in financial intermediation, international trade and labor markets, the statement added.

Reduced energy costs

Technology, the report adds, also represents an opportunity to transform the energy sector.

He argues that Latin America and the Caribbean has the cleanest power generation matrix of any developing region, mainly due to the abundance of hydropower. The region is expected to have the cheapest electricity of the developing world, but rather the most expensive, mainly due to inefficiency.

Businesses and households in the region pay much more for the electricity they use than it would cost to produce it. These inefficiencies translate into frequent breakdowns, technical and commercial losses, overburdened public enterprises and abuse of market power by private producers.

“With the right institutional framework, technology can increase competition in the sector, thereby reducing the price of electricity and increasing the share of renewables,” the report adds.

For example, decentralized generation can make businesses and households dependent on their own sources of energy, such as solar panels, and buy or sell electricity on the grid depending on the time of day. day.

In addition, an increase in cross-border electricity trade can take advantage of differences in installed capacity, production costs and demand seasonality to generate mutual benefits. However, this improvement in efficiency will only take place if electricity can be bought and sold at an appropriate price.

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