Costa Rica’s Central Bank has lowered its economic growth forecast for 2026 as weaker exports, slower household demand and the expected effects of El Niño increase pressure on agriculture, electricity generation and consumer prices. The bank now expects the Costa Rican economy to grow 3.4% this year, down from the 3.5% forecast issued in April and the 3.8% projected in January. Growth is expected to reach 3.5% in 2027, also one-tenth of a percentage point below the previous estimate.
The revision does not point to a recession, but it confirms that the economy is losing momentum after expanding 4.6% in 2025. Economic growth slowed from 4% during the first quarter of this year to 3.4% in the second quarter. Household spending and construction remain the main sources of support. Household consumption is forecast to grow 2.9% in 2026, while investment in buildings, equipment and other fixed assets is expected to rise 5.3%.
Construction grew 8.9% year over year during the second quarter. Financial and insurance services expanded 5.9%, while information and communications grew 4.4%. Exports present a more uneven picture. Total exports are expected to rise 2.4% this year, but that figure masks a projected 5.3% increase in goods exports and a 1.7% decline in services exports.
The slowdown reflects weaker international demand and reduced activity in business and manufacturing-related services. Costa Rica’s free trade zone economy is still expected to grow 4.6% during 2026, compared with 3.2% for businesses operating under the domestic tax system.
El Niño adds another layer of uncertainty. Current projections call for significantly below-average rainfall in the Pacific, Central Valley and parts of the Northern Zone, alongside higher temperatures across much of the country. Rainfall could fall as much as 60% below normal in the North Pacific and about 40% below normal in several other affected regions. The Caribbean and parts of the Northern Zone may experience the opposite pattern, with rainfall above historic averages.
Drier and hotter conditions could reduce yields for crops such as coffee and pineapple while limiting water and pasture available for cattle. Higher temperatures may also increase the spread of certain fungi and plant diseases. The outlook has already led to lower expectations for the agricultural sector. The Central Bank projects that agricultural production could contract in 2027 as weather damage combines with higher fertilizer and operating costs.
The risks extend beyond farms. Costa Rica depends heavily on hydroelectric plants, and lower water levels in reservoirs could force the Costa Rican Electricity Institute to generate more power using imported fuel. Thermal generation is substantially more expensive than hydropower. Greater reliance on fuel-powered plants could eventually raise electricity rates for homes and businesses, particularly if international oil prices remain elevated.
The Central Bank estimates that hydrocarbon prices will increase by an average of 28.2% during 2026. Fuel prices were already 15.5% higher in June than a year earlier. Those pressures are expected to gradually lift inflation after an extended period of unusually low or negative price growth. Average inflation should rise above 2%, though it is expected to remain below the bank’s 3% target.
Food and electricity represent the clearest risks for consumers. Lower agricultural production can push up grocery prices, while more expensive power generation can raise household bills and operating costs for hotels, restaurants, manufacturers and other businesses. The exchange rate continues to complicate the picture. The colón’s appreciation has helped limit the local cost of imported goods, but it has also placed pressure on tourism companies, exporters and other businesses that earn dollars while paying many expenses in colones.
The Central Bank reported purchasing $944.8 million in the foreign exchange market for stabilization purposes through July 30. International reserves stood at approximately $20.8 billion on July 28, equal to 18.1% of gross domestic product. The bank lowered its monetary policy rate to 3% in July, continuing a series of cuts that began in March 2023. Lower policy rates can eventually reduce borrowing costs, although the decline has only partially reached the interest rates offered by commercial banks.
Public finances remain another concern. Central government debt reached 61.1% of GDP in May, placing it above the 60% threshold that triggers stricter spending limits under Costa Rica’s fiscal rule. The government maintained a primary surplus, meaning revenue exceeded spending before interest payments, but the surplus fell from 0.7% of GDP in May 2025 to 0.6% a year later. The overall financial deficit increased from 1.1% to 1.3% during the same period.
Costa Rica’s economy is still growing faster than many developed countries, and strong construction, financial services and goods exports provide some protection against a sharper slowdown. However, the revised forecast shows that the country is entering the second half of 2026 with less room for error. A stronger-than-expected El Niño, further increases in fuel prices or weaker demand from major trading partners could place additional pressure on growth and household costs.
