FROM THE ECONOMIST INTELLIGENCE UNIT

Outlook for 2009-10

The success of the government's policies to mitigate the economic downturn will be a crucial determinant of the ruling party's prospects in the February 2010 general elections. The PLN is early favourite to win the elections.Economic policy will focus on the recently announced Plan Escudo, an ambitious emergency economic stimulus and social protection plan.We forecast that the non-financial public-sector (NFPS) balance will turn from a small (0.2% of GDP) surplus in 2008 to deficits of 4% of GDP in 2009 and 3.7% of GDP in 2010.The global economic outlook continues to deteriorate at an alarming rate. We now forecast that global GDP will contract by 0.8% (down from a rise of 0.2% in our February report), with the recession synchronised across all regions.A worsening domestic outlook has prompted a further downgrade to our forecast for Costa Rican growth, to a contraction of 0.8% in 2009 (down from last month's forecast of 0.5% growth).After a sharp widening in 2008, the current-account deficit is forecast to narrow in 2009, to 4.3% of GDP, owing mainly to falling domestic demand and lower import prices.

Monthly review

The PLN government's popularity has rebounded in early 2009, and with the opposition PAC still losing popularity, the PLN is early favourite to win next year's elections.The government has started to implement measures contained within the Plan Escudo, which was launched in January. These include the reduction of interest rates offered by state banks.Nine companies have applied for permits to provide telecommunications services following the opening of the sector mandated by the DR-CAFTA, which came into effect for Costa Rica in January.A sharp fall in revenue from customs taxes led to a widening of the fiscal deficit in January. This has led the Ministry of Finance to announce measures to strengthen tax collection and consider some expenditure cuts.Economic growth fell again in December, according to the monthly index of economic activity, the third consecutive month of falling output.Falling domestic demand and lower average oil prices led import spending to fall by 33.3% year on year in January, with all categories of import seeing a sharp decline.