Costa Rica continues to be the best performing economy of the sub-region. With its diversified export economy and its successful thrust into eco-tourism, it was best placed to withstand the effects of the economic
downturn in the US economy and in world tourism in 2002. Economic activity was sustained by increased exports and domestic investment and by government spending; the latter at the cost of a widening public sector deficit.

The total exports of goods and services of the other four fell by US$282 million or 2.5 per cent. This fed through their economies in terms of investment, government spending, and growth. The problem lies not only in the volume of export sales, but the terms of trade. Since 1995 the price of exports relative to the price of imports has fallen by 6.5 per cent for Costa Rica, 20.8 per cent for El Salvador, 18.2 per cent for Guatemala, 1.2 per cent for Honduras, and 29.5 per cent for Nicaragua.

A large part of this is due to the collapse in world market prices for coffee, a major traditional export commodity of the sub-region. However, remittances are a significant source of foreign exchange in Central America. In relation to exports, current transfers (mainly remittances) are 53 per cent in El Salvador, 44 per cent in Guatemala, 32 per cent in Honduras and 41 per cent in Nicaragua. Inflows from remittances are several times greater than foreign investment.

The total amount sent home by Central Americans living abroad increased in 2002. Like the island Caribbean, this would have helped to cushion the impact of the economic downturn on poor households.