The political environment will remain stable over the forecast period, underpinned by the strength of Costa Rica’s political institutions, even if there is a change of government in 2010. However, the lack of a governmental majority in Congress, coupled with the opposition’s ability to block legislation, will keep the pace of reform slow. The election chances of the governing Partido Liberacion Nacional (PLN) in 2010 will be damaged by a slowdown in economic growth and rise in unemployment, but the PLN remains early favourite to retain the presidency. The Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA) came into operation in January, freeing trade between the signatory countries and paving the way for liberalisation of telecommunications and insurance.The Banco Central de Costa Rica (BCCR, the Central Bank) will continue the gradual widening of the exchange rate bands as it prepares to move towards a formal inflation-targeting regime, which it hopes to have in place by 2010. Part-recapitalisation of the debts and related losses of the Central Bank will also contribute to a decline in inflation. Further progress on improving the Central Bank's finances will depend on the approval of a much-delayed fiscal reform, which will not be debated before 2010. With customs revenue set to fall, economic growth slowing and the implementation of an economic stimulus package, the fiscal accounts will revert to deficit in 2009-11. A large public debt burden will continue to complicate monetary policy.GDP will contract in 2009, dragged down by recession in the US and much of the developed world, as manufacturing output, private consumption, export volumes and real investment fall, which will also entail a fall in import volumes. DR-CAFTA is expected to encourage greater inward investment in the medium term (lifting the investment/GDP ratio to 22.6% by the end of the outlook period, from 20% in 2004-08), but in 2009-10 this will be constrained by tight financing conditions. Renewed export and private consumption growth will lead to a recovery in GDP growth in 2011-13, to an annual average of 4.7%.Inflation will fall from 2009 in a context of low international commodity prices and weakening domestic demand, and the Economist Intelligence Unit expects it to be lower on average in 2009-13 than in 2004-08, albeit still high by regional standards. The Central Bank will manage a controlled real depreciation of the exchange rate in 2009-10, which will involve a loss of reserves. The current-account deficit will fall from its very high levels of 2008. Structural weaknesses, such as a dependence on oil imports and US prospects, will continue to represent a risk to economic stability.Key indicators200820092010201120122013Real GDP growth (%)2.9-0.82.34.54.84.6Consumer price inflation (av; %)13.410.29.06.76.76.5Budget balance (% of GDP)0.2-4.0-3.7-0.60.70.9Current-account balance (% of GDP)-10.7-4.3-4.5-4.4-4.5-4.9Exchange rate C:US$ (av)526.2585.8630.1653.1668.9685.2Exchange rate C:€(av)773.6782.0872.7924.1968.31,007.2