DOES For almost a year, President Gustavo Petro received an economy that was barely recovering from the effects of the pandemic, and that was beginning to find itself between a rock and a hard place with the start of the Russian invasion of Ukraine and its impact on inflation.
However, at the macro level, the economy was driven by the strength that allowed it to resist the impact of the pandemic and take the country to the other side in the midst of the worst crises the world has experienced.
Undoubtedly, the first of the economic challenges faced by the Government was inflation, which was on the brink of reaching double digits and which in June 2022 reached 9.67%. From there it began to climb until March 2023 when it reached the ceiling of 13.34%. Since then, the last two months registered by DANE have shown a downward correction, and in May it fell to 12.36%.
Inflation
“Inflation is perhaps the most important macroeconomic concern of the last year, precisely because of the effect it has had on the purchasing power of consumers. Internal and external factors have had their incidence, such as the war in Ukraine, local issues such as the depreciation of the exchange rate and the indexation of public services,” explained Juan Camilo Pardo, an analyst at Corficolombiana.
This constant growth of inflation during the second half of 2022 and the third quarter of 2023, forced the Banco de la República to take as monetary policy measures to raise interest rates to a maximum of 13.75%, the latest data for June of this year. However, Petro received an interest rate from the issuer that was located at 6%, and that has not stopped having an upward trend.
But at the same time, during this period, perhaps one of the Government’s greatest successes was to carry out a tax reform that allows it to have higher revenues and at the same time adopt a challenging budget and fiscal framework.
Unemployment
Unemployment is one of the green points of the macroeconomic figures, since, during the mobile quarter between May and July 2022, the indicator was located at 11.0%. Today, the most recent DANE data shows that, for the quarter from February to April 2023, the data stands at 10.7%.
External debt
The external debt of June 2022 reached US$ 175,956 million, which represented 51.3% as a percentage of GDP. Of that value, US$75,029 million was from the private sector and US$100,927 from the public.
According to the issuer’s most recent figures, dating from March, the debt is US$ 187,371 million, which is equivalent to 55.3% of GDP; US$ 80,903 million are from the private sector and US$ 106,467 from the public.
GDP in green numbers
During the second quarter of 2022, the GDP reached the figure of $352.25 trillion and that upward trend has continued until the first quarter of this year, when it reached $384.2 trillion.
“The fiscal deficit improved as contemplated in the Medium-Term Fiscal Framework and in the projection that was already in place for the 2023 budget, the current account balance deficit improved. That being said, the macro figures are improving, but the micro ones such as trade, industry, exports and foreign investment are worsening. So you have to be very careful with the subsequent macro figures, because in the medium term the macro figures are going to start to get worse, Restrepo explained.
Growth
Indeed, the GDP data for the first quarter showed annual growth of 3.0%, which was higher than expected, but which seemed unsustainable given the negative performance that various sectoral indicators had been dragging since the beginning of the year.
This is the case, for example, of the building sector, where VIS housing sales have been falling for 15 months and in the first quarter only 21.7 thousand units were sold, one of the lowest records in the last decade ( – 61% per year only in March).
Similarly, vehicle sales in the country have been falling rapidly, to the point that in the first five months of 2023 there is an annual contraction of 24%, with only 76.2 thousand vehicles registered.
In particular, the Indicator for Monitoring the Economy (ISE) for April showed a significant deterioration in some sectors associated with private consumption, which adds to the poor performance that activities related to fixed investment have been registering for several quarters.
In monthly terms, the ISE contracted 1.0% in April and across primary, secondary and tertiary activities.
Consumption
Likewise, private consumption is beginning to increasingly incorporate the effects of high interest rates and the high household indebtedness accumulated in the last year, which is becoming evident in a lower dynamics of spending on durable goods (such as vehicles).
In any case, it is worth pointing out that the performance of economic activity in Colombia lags behind other countries in the region, where the slowdown began earlier than in our country; Thus, Colombia continues to be the economy with the best post-pandemic recovery compared to Brazil, Chile, Mexico and Peru.
In addition, the low execution of the public spending budget and local political uncertainty, especially in relation to the reform agenda for the first semester, are affecting consumption and investment decisions.
In particular, the figures for the execution of the General Budget of the Nation (PGN) without debt as of June show that appropriations amounted to 34.7% of commitments.
Box
The reforms, we will see
For its part, the lack of clarity regarding the reform process on key issues such as the labor market, the pension system and the health system have created a less favorable environment for decisions by companies and consumers and are reflected in the low levels of confidence indicators.
There are also external factors that explain the economic slowdown, such as the loss of momentum in the main world economies, which in turn have allowed a reduction in the costs of raw materials and inflationary pressures.
Although fears of a strong global recession have recently diminished, driving the appreciation of the Colombian peso and a reduction in the country risk premium that may favor economic performance in the coming months, the truth is that Colombian exports fell 31.5 % and register a significant deceleration trend so far in 2023.
Another of the elements that has caused uncertainty are the reforms and the mining-energy policy, factors that have not favored the performance of the economy so far, but lately there have been positive signs that could improve the outlook for the local economy, as already mentioned. You have mentioned the appreciation of the Colombian peso, as well as the appreciation of the public debt markets, which should soon begin to feel a relief on the financial costs of companies.
Additionally, although the execution of public spending is not doing well, it is expected to gradually improve during this second semester and allow a greater boost to the productive apparatus. In the same way, inflation is expected to continue subsiding in the coming months, but at the same time job creation will begin to improve.