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 incumbent is early favourite to win the elections.Economic policy will focus on the Plan Escudo, an ambitious emergency economic stimulus and social protection plan, which is proving slow to implement.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 4.3% of GDP in 2009 and 4% of GDP in 2010.The global economic outlook continues to deteriorate at an alarming rate. We now forecast that global GDP will contract by 1.8% (down from 0.8% in our March report), with the recession synchronised across all regions.The global downturn and indicators from early 2009 have led us to make a sharp downward revision to our growth forecast for Costa Rica, to a contraction of 2.6% in 2009 (down from 0.8% in our March report).After a sharp widening in 2008, the current-account deficit is forecast to narrow in 2009, to 3.2% of GDP, reflecting mainly falling domestic demand and lower import prices.

Monthly review

The two parties with realistic hopes of winning the February 2010 presidential election are preparing for internal party elections to choose their presidential candidates.In mid-March, after an interval of 48 years, Costa Rica re-established full diplomatic ties with Cuba.The public finances worsened again in February, affected by the economic downturn as well as falling customs-related revenue. Progress on implementation of the Plan Escudo has been slow so far.The government is implementing new strategies to boost the important tourism sector.The economic downturn accelerated in early 2009, with the monthly economic activity index recording a 5.7% year-on-year fall in February, marking five consecutive months of year-on-year falls.With domestic demand subdued, inflation is starting to ease towards target.