Entrepreneurs remain positive about economy: Costa Rica

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By LatAm Reports Editorial Team

The economic forecasts of the Costa Rican entrepreneurship continue to be encouraging in this 2024.

This is stated in the results of the Business Expectations Index (IEE) for the second quarter of this year, which had a rating of 57.5 points, practically the same as the last survey carried out for the first quarter of 2024 (56.9 points).

In addition, there is a slight improvement when comparing the most current result with the average of the second quarters of recent years, which the current figure exceeds by 3.5 percentage points. In fact, it is the best note given by the businessmanship for a second trimester since that recorded in 2012 (57.8).

According to the latest Quarterly Survey on Entrepreneurs’ Opinion (ETOE) conducted by the Institute for Research in Economic Sciences (IICE) of the University of Costa Rica (UCR), this situation is replicated in virtually all sectors that are usually consulted: agriculture, construction, trade and services. This last analysis was carried out from 19 February to 7 March this year, for which people from 415 companies from the above-mentioned economic sectors were consulted.

Only in the case of manufacturing was a significant decrease (-3.1 points) detected, although this is insufficient to undermine the promising expectations of this sector (59.5 points). It should also be noted that the only economic activity that has not yet reached the optimistic area is agro (point of 48.9), although it had a symbolic improvement of 1.4 points over the previous survey of the end of 2023. Overall, where the most optimistic opinions are in construction (63,0), which is still striking, as two years ago it was the most pessimistic sector.

Lower employment outlook for the second quarter

At least 63 per cent of the sectors consulted expect to keep their spreadsheet unchanged, a number very similar to the one in the previous survey. Of that figure, 29 per cent say its decision is based on the fact that it has contracted in the last three months.

If all the answers are taken into account, almost seven out of 10 survey participants do not expect to make changes to the number of their spreadsheet, while 21.7 per cent do plan to integrate new members and 8.7 per cent believe they will make reductions.

This means a net balance of 13 percentage points (possible less possible recruitments), i.e. there is a more negative employment outlook than three months ago, when this percentage was 19 percentage points (p. p.). Conversely, there is more optimism in this fact when compared to the balance sheet for the second quarter of the last 14 years (3.9 p.p. on average).

For its part, responses to a possible increase in staff for this second quarter in companies vary between 15 per cent of agriculture and 33 per cent of construction.

Taking into account the size of the company and the movement of the spreadsheet, the small ones are the ones that expect the most recruitment, with 52.2 per cent of responses, followed by the immediate and large ones (18.9 per cent and 16.5 per cent, respectively) and, finally, the micro-enterprises, with 13.3 per cent.

Sales, production and utilities are seen with positivism

The balance sheet of the entrepreneurship that estimates a good second quarter for sales and production is higher than that presented by the survey for the first quarter, with improvements of between 14 and 37 percentage points, depending on the sector. Even the difference is better than shown, on average, last year.

Already by area of economic activity, the one that expects the most an increase in sales and production is agricultural, with 44 per cent; followed by construction, with 38 per cent. On the other hand, the one that is the most negative is that of services, since 20 % believe that these factors will decrease in the current quarter.

The most positive entrepreneurship considers that there is greater production and capacity in sales, in addition to having seen improvements in the movement of its market, as well as greater production capacity and implementation of new products and different presentations. In the opposite direction, the most pessimistic complains about the seasonal factors during the months analyzed, the behavior of the dollar and the competitiveness of its sector.

As with sales and production, the survey results also reflect an improvement in expectations of higher profits for businesses in the second quarter of 2024. In fact, for all sectors except agricultural, the expectation that they will improve to remain or lower is higher.

This is the case in construction (67 %), manufacturing (50 per cent), trade (48 %) and services (45 %). In agriculture, the idea that profits will remain the same (54 per cent) prevails and is the one that fears they may fall the most, although with a small percentage (20 per cent). Comparing these figures with the average data for the past year, it is again the construction sector that presents the greatest improvement, followed by services. For others, however, there is a deterioration in their outlook of between 1 % and 6 %.

Positivism descends on competitiveness, but investment would improve

Although the vast majority of entrepreneurship expects the competitive position of its business to remain or improve, when comparing net responses with the results on average last year, these are less flattering in all sectors.

However, if the results are broken down by area, trade is the one that expects the best competitiveness of its operations, with 52%, while the agricultural sector is the one that presents the most negative perspective, with 15 %. But, in general terms, the majority responses assume that the competitive landscape in their sector will remain the same, with responses ranging from 45 per cent to 54 per cent.

Also, in a majority way, companies do not plan to make new investments in elements such as tools and equipment, infrastructure, machinery, information and communication technologies and software, and others. The two areas that most propose to dare to make this type of acquisitions are manufacturing (18.0 %) and services (17.5 per cent), while the lowest percentage is trade (12.3 per cent). The percentages that do not know if they will make new purchases of this nature range from 23.6 per cent to 33.6 per cent.

On average, the entrepreneurship that would be making new investments is 16.1 per cent, this is 2.4p.p more than said for the first quarter. In this sense, the sector that improved its expectation (with respect to the previous survey) of injecting more resources into its company into the aforementioned elements was that of construction (4.7 p. p.).

Companies expect exchange rate stabilization

As has been the case in previous surveys, most of the individuals consulted by the IICE (55.2 per cent) said that the price of the dollar in the country will not vary widely. Of that percentage, 4 out of 10 respondents indicated that this effect will not affect the competitive position of their companies; a quarter said it will benefit them, while three out of 10 more said that such a situation will harm their businesses.

The sector that is most committed to stability in the exchange rate is agricultural (68.3 per cent). It should be noted that, during the period of application of the survey, the dollar maintained an average value of 517.2 colons and during the consultation for the first quarter the average price was 518,8 colones, i.e. there was clear stability in this factor.

Meanwhile, the type of business that most considers that the US currency will fall even further is the manufacturer (18.2 per cent). On the contrary, the one that claims that this currency will increase its value in the second quarter is construction, where a third of the responses pointed out.

If these results are broken down between exporting and non-exporting companies, the 61 per cent of the former argue that the value of the dollar will negatively affect them, 30.6 per cent indicate that it will not cause any effect and only 8.2 per cent consider that it will benefit them. In the case of the latter, the largest percentage is concentrated in the entrepreneurship, which states that the exchange rate will have no effect on its operations (46.9 per cent), 30.7 per cent is hopeful that it will benefit them and the 22.3 % that it will harm them.

Finally, 20.6 per cent of the companies consulted claimed to export their products (only between the agricultural and manufacturing sectors). Within this group, 42.0 % indicated that it exports less than a quarter of its production, 39.0 % exports more than half and 12.0 % exports between one quarter and half, while 7.0 % did not respond.

This article has been translated from the original which first appeared in El Pais