Economic Situation Report
Economic Situation Report
March 2014
Investment Strategy
Adriana Rodríguez
Economic Situation Report
Economic Activity
The Monthly Economic Activity Index (IMAE) showed positive but limited growth
during January (0.13% annualized), which was explained mainly by the reduced
productive activity from the manufacturing sector.
Inter-annually, the expansion rate for January was 3.1%, which represents a
noticeable slowdown from the 5% inter-annual growth observed in September.
This deceleration as well as the subsequent economic activity slowdown indicated
by the IMAE indicator during 2013 is related to the export rhythm of the Free Trade
Zones.
As a matter of fact, the Free Trade Zone deceleration has caused the IMAE
measured without the Free Trade Zones for January to be greater that the IMAE with
Free Trade Zones, as observed between July 2012 and May 2013.
Monthly Economic Activity
Inter-annual and Average Variation
Source: Aldesa graph based on BCCR data.
3.08%
0.0%
2.0%
4.0%
6.0%
8.0%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Variación IMAE Variación promedio 12 meses 12-month Average Variation IMAE Variation
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The Free Trade Zone Sector suffered a downward trend in its monthly exports,
significantly and especially in November and December. This downward trend was
related to the decreased US production affected by their unusually bitter winter
season, which meant the temporary suspension of production and transportation in
the East and Central regions of the US.
However, exports from the Free Trade Zones in February increased by $45 million, for
a monthly total of $487 million. The accrued amounts for the Free Trade Zones for the
first two months of the year were 1.2% less than that accrued for the first two months
of 2013.
Based on Aldesa’s own estimates, we hope that the export rhythm for the Free Trade
Zones will improve throughout the year, as well as continuing with a positive trend
shown by the exports from the Regular or Definitive Regime.
Regarding the latter, the economic activity level measured by the IMAE from the
Central Bank of Costa Rica (BCCR), as well as exports performed by them presents
an upward trend since August of last year.
Exports from the Definitive Regime in February (exports outside of the Free Trade
Zones that also include traditional exports) reached $435 million, its highest level yet
since May 2013. Accrual for the first two months of the year registered 2.6% higher
than that for the same period in 2013.
At the aggregated level, exports to the European Union and South America in
February presented higher positive variations (27% and 30%, respectively), these
destinations also added to improved monthly exports to North America and Asia.
Similarly, the BCCR recently disclosed the final data on Gross Domestic Product
(GDP) for the last quarter of 2013, which closed the year with a 3.54% growth for the
last portion of the period. This growth was due to the strong progress of goods and
service exports and a stable investment.
As a matter of fact, Direct Foreign Investment for the last quarter of the year was the
highest on record with $929 million recorded for the last quarter of the year, and an
annual total of $2,682 million ($2,288 million in 2012).
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BCCR’s expectations for Direct Foreign Investment for the Macro Economic Program
in 2013 was $2,069 million, this number was revised in June and reached $2,460
million.
Inflation
Price growth for goods and services in the Basic Basket was 0.62%, for an inter-
annual inflation of 3.2%, and 2.04% accrual for the quarter (2.46% at March 2013).
The monthly price increase did not exceed February’s registered price (0.66%), even
though the high spike in the exchange rate fed the expectations of an increase in
goods and services for the Basic Basket, which included imported supplies.
Inflation expectations for the following 12 months went from 5.8% to 6.1% between
January and February, and the expectations for inflation for the following 6 months
went from 1.9% in January to 3.8% in February.
Consumer Price Index
Inter-annual variation
Source: Aldesa graph based on INEC data
At the closing of March, the accrued inflation for the Quarter was 2.04% (2.5% for March 2013).
Regulated Inflation IPC Interannual Variation Un-Regulated Variation
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Interest Rates
The Basic Lending Rate (BLR) went from 6.45% to 6.60%, calculated towards the last
week of the month, and reaching its highest point since August 2013.
From the four groups that comprise the BLR, only the Group from the State Banks
presented an increase in its capturing rates, which went from 6.05% to 6.35%,
enabling all averages from paid rates to jump from 6.45% to 6.60%.
Capturing rates from Private Banks remained at 6.73%, Co-operatives at 7.72% and
Mutual Funds at 6%.
On March 13th the Central Bank increased its Monetary Policy Rate (MPR) from 3.75%
to 4.75% as a response to the accelerated depreciation of the Costa Rican Colon
before the US Dollar; this obligated the Central Bank to sell a total of $226 million in
March and $104 million in February.
The increase in the Monetary Policy Rate by the BCCR was followed by an increase
in their “Direct Central” capturing rates, which forced banks to compete against
these higher rates in order to attract resources.
On the other hand, stock market yields for investment instruments in domestic
currency presented an additional increase for the month, especially visible for fixed
rate bonds with terms greater than 4-years.
Basic Lending Rate and Monetary Policy Rate
Source: BCCR. Aldesa.
BLR MPR
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We consider that interest rates in domestic currency will be less pressured to rise
once the resources come in for the next allocation of foreign debt bonds in the
international markets.
However, the actions of the Central Bank upon the increase of the exchange rate
(increasing the MPR) implies a higher “floor” for interest rate levels and a higher cost
of money, which will be reflected in the cost of credits at a moment when there is a
higher attractiveness feel among consumers.
Short-term interest rates in US Dollars in international markets suffered a slight
adjustment in March, when the markets didn’t heed to the message sent by the US
Federal Reserve regarding a possible first increase in its Monetary Policy Rate for
2015.
However, at the local level there persists a high liquidity level in US Dollars that
implies lower interest rates for savings in that particular currency; while certain
investment instruments denominated in US Dollars show interest rates that are
relatively higher, but are subjected directly to the risk of a reduced rating in the
sovereign debt by Moody’s.
Exchange Rate
The Colon-Dollar exchange rate suffered an extremely volatile trend during the
month of March. This volatility was greatest during the first two weeks of the month. It
was measured by its standard 15-day variation, as well as from the daily exchanges
for the Colon from the Dollar price.
In the foreign currency wholesale market (MONEX), the exchange rate suffered
movements that ranged between ₡520.00 and ₡580.25, and reached its lowest
value towards mid-march, when it was traded at MONEX at ₡520 and its daily
average closed at ₡540.79.
Traded amounts at MONEX exceeded 49% for February. March experienced trades
of $588 million, for a daily average of $29 million. The daily average for February was
$19 million, for a monthly total of $380 million.
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Amounts traded at the bank windows tended to stabilize during the last half of
March. The daily average traded at the windows for the first half of the month was
$139 million, and $118 million for the second half. Daily average for windows for all of
2013 was $120 million.
MONEX Average Exchange Rate
Source: Aldesa graph based on BCCR data.
With the entry of foreign currencies presumed by the latest allocation of $1 billion in
new foreign debt bonds for 2044, we expect that the purchases from the Non-
Banking Public Sector (SPNB) to diminish, and therefore relieving the exchange rate
market pressure and allowing the exchange rate to rise once again mainly during
the second half of the year.
500
510
520
530
540
550
560
570
580
Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14
TC Promedio Int. Compra
Yearly accrued devaluation 9.2%
Ave. ExRate Int.Purchase
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MONEX traded amounts and exchange rates
The Average Exchange Rate at the Monthly Closing
Source: Aldesa graph based on BCCR data.
Fiscal Deficit
The Government operational monthly deficit for February was ₡120 billion (0.4% of
GDP), and with the financial load for the month, the unbalance was ₡131 billion
(0.5% of GDP).
For the annual accrual, the fiscal deficit ascends to ₡326 billion (1.2% billion) for the
first two months of the year. The accrual is 8% above that registered for the same
period in 2013 (₡302 billion).
Total earnings improved by 5.9% regarding total earnings for the first two months of
the year, with total expenditure increasing by 6.7%.
This expenditure showed a 9.1% growth for remunerations and 12.4% for transfers. At
the earnings level, those perceived under the profit and utilities concept grew by
23%, and 19% for the exportations concept.
$345.54 $380.69
$588.06 ₡515.99
₡550.35
₡549.70
$495 $500 $505 $510 $515 $520 $525 $530 $535 $540 $545 $550 $555
$0
$100
$200
$300
$400
$500
$600
$700
ENERO FEBRERO MARZO Mill
one
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SD D
óla
res Monto Negociado MONEX Tipo de Cambio
Tipo
de
ca
mb
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ON
EX M
illio
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of U
SD$
MONEX traded amounts Exchange Rate
Excha
nge
Rate
M
ON
EX c
losing
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Fiscal Deficit accrued as of February
Data accrued for February from each year, in Billions
Source: Aldesa graph based on Ministry of Finance data.
Additional Information
Economic Activity Index by Sector Inter-annual variation
Source: Aldesa graph based on BCCR data.
Indirectly measured Financial Mediation Services Transportation, Storage and Communication Finance and Insurance Services Other services Rendered to Companies
Mining and Quarry Material Exploitation
Commerce
Construction
Hotels Remaining Industries
Agriculture, Silviculture and Fishing
Power and Water
IMAE with IEAT, Cycle Trend
Manufacturing Industry
IMAE CYCLE TREND
Billi
on
s o
f C
RC
Co
lon
es
FINANCIAL SUP/DEFICIT
aug-13 dec-13 jan-14 apr-13
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Activity Index for the Manufacturing and Construction Sector Inter-annual Variation
Source: Aldesa graph based on BCCR data.
12-month Expected Inflation BCCR expectations survey
Source: Aldesa graph based on BCCR data.
12-month inflation
Manufacturing Industry Construction
Jan Jan Jan Jan Jan Jan Jan Jan
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Secondary Market Yields
Foreign Debt Instruments
Source: BNV. March 27, 2014.
Domestic Debt Instruments
Ministry of Finance
Rate Instruments in US Dollars
Source: BNV. March 27, 2014.
Price Bond Yield Government $ Ex Rate
Price Bond Yield Government $ Bonds
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Ministry of Finance Fixed Rate Instruments in CRC Colones
Source: BNV. March 27, 2014.
Price Bond Yield Government Ex Rate
Coupon