Economic Situation Report

Economic Activity

Economic
Situation
Report

The first data coming out of 2015 reveals that the Nations economy is losing
momentum. The Monthly Economic Activity Index (IMAE) showed that February had
a 2.22% growth in inter-annual terms. This number is below average compared to
2014.
The Agro and Fishing sector was the only sector - in inter-annual terms that has
shown a (- 2.2%) decline compared to last year; considering that this activity was
the one that was actually thriving. BCCRs forecast for January showed that this was

April 2015

one of the pillars for growth in 2015, but if it doesnt recover it certainly has the
potential of actually threatening the expected growth.
The Manufacturing industry sector showed an inter-annual growth of 0.3%; this sector
has been affected by the shutdown of operations from Intel. However, this is only
contemplating the complete cessation of manufacturing operations by Intel
according to BCCRs Economic Situation monthly report for March.

Monthly Economic Activity Index

Inter-annual and Average Variation

IMAE
IMAE

Inter-annual
and 12-month
Average
Interanual
y Promedio
de 12
meses

Investment Strategy

(%)(%)
Inter-annual
interanual
VariacinVariation

5%

4%

3,5%

3%
2,9%

2%
Cycle Trendciclo
Tendencia

12-month Average
Promedio
de 12 meses

1%

Hernn Varela
hvarela@aldesa.com

0%
nov-13
Source: BCCR

Economic Situation Report

ene-14
jan-14

mar-14

may-14

jul-14

sep-14

nov-14

ene-15
jan-15

The Construction sector went up by 4.66% in January in inter-annual terms. Much of

this activity was due to private construction, although public works did show signs of
improvement for February after having a sluggish start.
In regards to employment, the On-going Employment Survey showed that by the
end of 2014, the unemployment rate was 9.7%; which represents a 1.35% increase
compared to the same date from the previous year. This result is consistent with a
lower number of the occupied workforce, and an increase in the 15-year old and
over population.
Regarding foreign trade, the commercial deficit continues to show a downward
trend. Data for February shows that the deficit was US$5.751 Billion, 10% lower in
inter-annual terms. This result is due to lower imports, which have been higher when
compared to exports.

Commercial Deficit, Exports and Imports

In US$ Billion

20

7,0

18

5,0

14
12

4,0

10
3,0

8
6

2,0

4
1,0
2
0
may-12 sep-12

ene-13
jan-13 may-13 sep-13

Commercial
Deficit
Dficit
comercial

jan-14 may-14 sep-14 jan-15

ene-14
ene-15

Exports (FOB) (fob)

Exportaciones

0,0

Importaciones
Imports (CIF) (cif)

Source: BCCR

Foreign sales for the first two months of the year totaled US$1.490 Billion, which is
18.1% lower for the same period in 2014. This is strongly due to the shutdown of Intels
manufacturing plant. Now, according to the Offices of the Foreign Trade Promoter

Economic Situation Report April 2015

Dficit comercial
Deficit
Commercial
de millones
(En miles
Billions) de US$)
(in US$

Exports &e Imports

importaciones
Exportaciones
Billions)de US$)
US$millones
(in de
(En miles

6,0
16

(Procomer), exports of computer components for February spiked down by 43.2%.

On the other hand, if these are excluded, then the rest of the special regime sales
increased by 32.2%, which implies growth for the export sector, once all the noise
generated by the shutdown of Intels manufacturing plant has subsided.
On the positive side, we can highlight the activity created by the medical device
industry, which according to BCCR would partially compensate the whole Intel
factor.

Special Regime Exports

12-month Accrued

5.500

5.000
4.500

de US$
Millones
US$ Billion

4.000
3.500
3.000

2.500
2.000
1.500
1.000
aug-14
feb-14 apr-14
abr-14
jun-14
ago-14
Componentes
para computadora
Computer Components

dic-13
dec-13

oct-14

dic-14
dec-14

feb-15

Regimenes
especiales
sin
componentes
para computadoras
Special Regime
Without
Computer
Components
Source: PROCOMER

Economic Situation Report April 2015

Inflation
The accrued price variation for Basic Basket goods and services was 0.02% for the
first quarter, compared to 2.04% for the same period last year. Therefore, the interannual variation is approaching the lower limit of the Central Banks target range,
and would fall, at least temporarily, below 3%. When we compare this to developed
countries, that when it falls below a set target range it can cause a major problem
to the central banks, in our country it is actually quite the contrary; because it is
temporary and it is linked to the prices of raw materials. This situation has given a
certain degree of freedom to the Central bank to execute the two cutbacks made
to the Monetary Policy Rate.
The stability in the exchange rate and the strong decline by hydrocarbons are the
two main factors behind the decreasing indicator. This is reflected in the behavior
seen by the tradable goods groups, which in March fell by 1.1% in inter-annual
terms.
When we analyze the groups that form part of the Basic Basket, we can highlight
clothing, transportation, communication and shoes as the ones showing the lowest
prices. On the other hand, food, health services and education are spiking at rates
that are above the general index.

Price Index
Inter-annual Variation

7%

(%)
Inter-annual
interanual (%)
Variacin Variation

6%

5%

Target
Rango range
meta

4%
3%
2%
1%
dic-13
dec-13

feb-14

abr-14
apr-14

consumers
Al
consumidor

jun-14

ago-14
aug-14

oct-14

dec-14
dic-14

feb-15

Inflacin
subyacente
Underlying
inflation

Source: INEC

Economic Situation Report April 2015

Interest Rates
The Basic Lending Rate (BLR) showed signs of decline. This decline was partly due to
two cutbacks executed by the BCCR on the Monetary Policy Rate (MPR), which is
locked at 4.5%.
Other contributing factors include the reduced demand for credit in Colones, which
in turn reduces the capturing need of public and private banks. February data
showed that credit in Colones were reduced by an annualized rate of 2.3%, while
credit in Dollars increased to almost 9%. This stability in the exchange rate has made
such credit once again attractive.
Therefore, the premium to invest in Colones is still quite positive and has reached
colon pre-devaluation levels from early 2014.

PREMIUM TO INVEST IN LOCAL CURRENCY

Differentials between USD Basic Lending Rate and Libor Rate using BCCR exchange rate
12-month forecast
400

350

points
Base
Base
Puntos

300
250
200
150
100
50
0

jun-13

sep-13

dic-13
dec-13

mar-14

jun-14

sep-14

dec-14
dic-14

mar-15

Source: BCCR

Active rates in Colones remain fairly stable, while rates in USD are seeing a
downward trend in State as well as in private banks, resulting from the competition
from different institutions in placing this currency.

Economic Situation Report April 2015

Exchange Rate
The BCCR Board of Directors decided to eliminate the exchange rate band at the
beginning of this year. So as of that moment, Monex the wholesale market, started
to see a push upwards in the exchange rate numbers. In order to alleviate this
pressure, the BCCR intervened to prevent an aggressive spike, but after a few days
the exchange rate started to decline. The Central Bank just acquired around $91M
under its Accrued Reserves Program. Acquisitions are greater if we add those that
were purchased in order to supply the Non-Banking Public Sector, so the BCCR has
therefore acquired over $300M.
So, the average exchange rate went from 539 at the moment when the regime
changed to 532, which resulted in the lowest number for the year.
Therefore the lower fuel costs, plus the resources coming from the Eurobonds, and
the reduced dollarization of the investment portfolios are a few of the factors why
the exchange rate suffered a lowering trend. But this is exactly why in order to
reduce this potential appreciation; the BCCR has in place an Accrued Reserves
Program of up to $800M.

Exchange Rate and Traded Amount

Amount in Thousands of USD and specific Exchange Rate

60.000

544,0

542,0
50.000
40.000

538,0
536,0

30.000
534,0
20.000

532,0

Colones por
per US$
Colones

de US$
Miles
US$
Thousands

540,0

530,0
10.000
528,0
-

526,0
28 Nov 12
12 Dec
Dic 29 Dic
Jan 11 Feb 25 Feb 11 Mar 25 Mar
Jan 28 Ene
Dec 14 Ene
2014 2014 2014 2015 2015 2015 2015 2015 2015

Source: BCCR

Economic Situation Report April 2015

The appreciation of the Colon against the US Dollar is due to the fact that the USD is
also appreciating compared to other currencies, especially the Euro, which also
implies that the Colon is indirectly appreciating against other currencies, which
could have an effect on mid-term export competitiveness.

Fiscal Deficit
The financial deficit of the Central Government accrued as of February went down by
11.3% compared to the same period of last year. This is due to a greater growth of
income versus expenditures. The government input came in at 582.373 Million, which
represents an increase of 10,8% in inter-annual terms. Tax income however, showed an
increased growth compared to the previous year, resulting from an improved flat tax
for fossil fuel that as of February has collected an estimated 45.851 million, 37% more
than in 2014.

Tax Income Structure

By Tax type, accrued as of February 2015

Ventas
Sales
6%

Ingresos
y utilidades
Income &
Earnings

16%

40%
18%

Otros
Other tributarios
Taxes
Combustibles
Fuels

20%

Consumption
Consumo

Source: Ministry of Treasury

Expenditures showed a 2.3% increase compared to that which was accrued for the first
couple of months in 2014. This outcome was strongly influenced by the downward spike
in remunerations, particularly those referring to social benefits that in February were 32%
less than the previous year.

Economic Situation Report April 2015

So, the government financial deficit in February reached over

288.870

Million (1% of

GDP); while the primary, which excludes debt payment, closed at 0.8%; in other words
around

216M.

The outcome for the first two months of the year is quite positive,

however, expenditures continue to be less flexible, and therefore require a long-term

solution.
Recently, the Government announced its plan to increase income, but it seems that
the current climate is not the best to foster these types of measures. With the exception
of the incumbent political party, the majority are actually against approving projects
without first reviewing the expenditures involved.
In regards to the administration of the deficit and debt, the government recently
placed Eurobonds in the international market. Also, collections were improved and any
potential market contraction was reduced through a debt swap. So as indicated
above, the rates have a trend to go down.

Economic Situation Report April 2015

Additional Information
Economic Activity Index by Sectors
Inter-annual Variation
Mar-14
Other Services
rendered
to Companies
Otros
Servicios
Prestados
a Empresas
Servicios
de Intermediacin
Financiera (Indirectos)
Financial Brokerage
Services (indirect)
Transporte,
Almacenamiento
y Comunicaciones
Transportation,
Storage & Communications
Construction
Construccin
Servicios
Financieros
y Seguros
Financial and
Insurance Services
Extraccin
de Minas
y Canteras
Mining and Quarry
Material
Exploitation
Trade
Comercio
Hotels
Hoteles
Remaining
Sectors
Resto
de Sectores
Electricidad
y Agua
Electricity & Water
Industria
manufacturera
Manufacturing
Industry
Agricultura,
silvicultura
y pesca
Agriculture, Silviculture
& Fishing
IMAE with
Trend Ciclo
IMAE
con IEAT,
IEAT,Cycle
Tendencia

Jun-14

Set-14

Dec-14
Dic-14

Jan-14
Ene-14

Feb-14

5,1%
13,6%
7,6%
2,2%
8,5%
1,8%
4,0%
4,5%
3,0%
1,7%
3,2%
5,3%

3,7%
11,6%
7,0%
2,7%
7,1%
2,5%
4,3%
4,1%
3,0%
1,6%
2,9%
4,9%

3,8%
9,9%
6,5%
3,5%
5,4%
3,3%
4,1%
3,7%
3,0%
1,1%
2,8%
1,1%

4,8%
7,5%
5,4%
4,8%
4,9%
4,0%
3,9%
3,2%
3,0%
1,1%
1,7%
-1,2%

5,0%
6,5%
5,2%
4,5%
4,7%
4,1%
3,8%
3,1%
3,0%
1,5%
1,1%
-1,7%

5,2%
5,0%
5,0%
4,7%
4,4%
4,1%
3,8%
3,1%
3,0%
1,7%
0,3%
-2,2%

4,0%

3,8%

3,2%

2,7%

2,5%

2,2%

Source: BCCR

Credit to Private Sector

Annualized Quarterly Balance Variation in CRC and USD

30%
Quarter
Variation
Annualized
%%
Anualizadas
Trimestrales
Var.

Moneda
nacional
Local Currency

Moneda
extranjera
Foreign Currency

25%
20%

15%
10%
5%
0%
-5%
II-13

III-13

IV-13

I-14

II-14

III-14

IV-14

ene-feb
jan-feb

Source: BCCR

Economic Situation Report April 2015

Domestic Debt Curves

Ministry of Treasury Fixed Rate in Dollars (USD)
7,0%

6,0%

Rendimiento
Yield

5,0%
4,0%
3,0%

2,0%
1,0%
0,0%
-1,0%
0

10

12

Duracin
Duration
Source: National Stock Exchange.

Ministry of Treasury Fixed Rate in Colones (CRC)

12,0%

10,0%

Rendimiento
Yield

8,0%

6,0%

4,0%

2,0%

0,0%
0

10

Duracin
Duration
Source: National Stock Exchange.

Economic Situation Report April 2015

10