Macroeconomic Forecast Costa Rica

M1 money supply, which consists of most liquid forms of money and demand deposits, contracted by 4.3% y-o-y in May, the fourth consecutive month of year-on-year declines. M2, on the other hand (M1 plus savings accounts, time deposits, and balances in retail money market mutual funds), continued to surge at a monthly clip of above 22.0% y-o-y. These dynamics suggest to us that Costa Rican households and businesses are channelling more of their money into savings, a trend likely to exacerbate the retreat in domestic demand in 2009. We are forecasting a 1.6% slump in domestic demand this year, a key factor behind our real GDP growth forecast of -4.0%.

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