The Ukraine-Russia conflict will leave more unemployment and less purchasing power for Costa Ricans

QCOSTARICA – Despite the fact that it is a very distant reality, the invasion of Ukraine by Russia will affect the Costa Rican economy, influencing the rise in prices of goods and services, a rise in interest rates interest on loans and cards and a more expensive dollar exchange.

The Costa Rican economy is affected because people will minimize their expenses

Likewise, record figures are already registered in the cost of fuel and some raw materials, while unemployment will remain static at best, but with a tendency to increase.

Read more: ARESEP approves the increase in gasoline prices

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The impact on the Costa Rican economy would depend on the duration of the war, in addition to the influence on basic cereals and other imported products, according to several specialists interviewed by La Republica.

This will hit the pockets of Costa Rican families, who will lose purchasing power, while business production costs rise, slowing economic reactivation and job creation after the pandemic.

The situation is worrying considering that more than 350,000 Costa Ricans are currently unemployed.

And it is that the price of oil jumped more than $100 a barrel for the first time since 2014, due to possible disruptions in global supply, sliding on Friday to settle at $97.73, according to Reuters.

Benchmark natural gas rose 62%, the most since at least 2005, Bloomberg reported.

Indeed, Russia is one of the biggest oil producers outside of OPEC, so a negative effect like this impacts the world, while Ukraine is the biggest gas seller.

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The pandemic had already impacted crude oil prices since mid-2021 and now with this war, it is highly likely that the United States will decide that it is time to raise international interest rates and that they will have to adjust national rates on the rise.

The container crisis is another of the factors that influenced the increase in the prices of imported products and put pressure on inflation in Latin American countries.

Central banks can use different measures to curb inflation, such as raising the monetary policy rate or removing cash from the streets, but both would affect household consumption and production costs.

The impact would also be felt on economic growth, since the Central Bank estimated it at 3.9%, taking into account, as a risk, the geopolitical tension in Europe when it recalculated the estimate.

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By increasing the cost of crude oil, maritime and land transport will be more expensive and this will aggravate the supply problem, already present with the container crisis, increasing the final price of imported products, mainly cereals and others from the basic basket .

Economic consequences of the war

The war between Russia and Ukraine will leave a series of consequences on the Costa Rican economy.

Here are some of the consequences:

  • More inflation
  • Fewer jobs
  • Deterioration of economic growth
  • A rise in the cost of oil imports
  • Increase in production costs
  • Higher interest rates for loans
  • Decline in business investment
  • Higher transport costs

“Currently, inflation expectations, as measured through the U.S. fixed income markets, already reflect a significant increase for this economy, which, given that we belong to a very clear economic area comprising Canada, the United States United States, Mexico and Central America, could have repercussions on interest rates and possibly, if the armed conflict is prolonged, on economic growth”, detailed Melvin Garita, general manager of BN Valores.

Shirley Saborio, an independent economist, explained that the rise in oil prices generates an effect on the terms of trade because we are direct importers.

Costa Rica’s economy is affected because people will minimize their expenses and stop using the car and reduce spending on goods that can be substituted for others at a lower price.

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