The country’s productive activity would have expanded 3.6% during the first quarter of this year. According to an analysis by Bancolombia, in the first three months of 2023 there was evidence of better relative performance in the agricultural and energy (public services) sectors. On the contrary, the slowdown in commerce, construction and industry continues, while recreation, communications and public administration accentuate their rate of slowdown, as does mining.
Said growth in the first quarter is 1.6% more than what was registered between December 2022 and February of this year. Meanwhile, the series adjusted for seasonal effects showed that the economy presented a sequential decline of 2% in February and an advance of 0.4% in March. This would contrast with the strong increase observed in the first month of the year.
In year-on-year terms, the punctual variation in March was 2.6%, 0.7% less than the estimate for the previous month.o.
The projection of GDP growth for this period based on forecasts, with a notable improvement compared to the previous report, and far exceeds the average expectation of analysts.
After two years of superlative dynamics, in the midst of a volatile cycle after the shock of the pandemic, the Colombian economy should recover its macro stability. Where the GDP growth of the last two years, above potential capacities, deepened in recent macroeconomic imbalances such as inflationary pressures and the expansion of the current account deficit.
The settings
In this context, the adjustment of economic policy (monetary and fiscal) would be leading to a period of weak growth. In fact, this dynamic is part of the path required to return to equilibrium and ensure that, eventually, inflation returns to its long-term objective and that the size of the external imbalance moderates, at least, to its historical average.
So that, an expected GDP growth for 2023 of only 0.6% and an inflation that begins its convergence trend to end the year at 9%, They would be two sides of the same coin. Colombia then faces the challenge of recovering its stability, but in the midst of a panorama clouded by uncertainty.
Regarding the international context, geopolitical tensions and growing concerns about the resilience of the banking systems of developed countries would be the source of uncertainty. Meanwhile, at the local level, the focus is on the evolution of the multiple reforms currently underway by Congress.
Consumption
According to market research, the latest figures from the leading indicators reaffirmed the deterioration in domestic demand motivated by private consumption that deepens its weakness (more details here).
“Specifically, the second consecutive quarter of contraction in the consumption of our cardholders was accumulated as a result of the deterioration of financial conditions due to high inflation, high interest rates and high exchange rate levels,” the analysis maintains.
The experts consider that “in this way, productive activity maintains its growth rate above potential capacities, in a scenario where economic prospects in the short and medium term remain challenging.”
Meanwhile, the labor market registered an unexpected improvement during February. Specifically, the national unemployment rate fell to 10.3% (seasonally adjusted) in February. In general, unemployment decreased as a result of a surprising lower pressure on the labor market (labor participation), while the evolution of employment proved resilient.
In the external sector, exports maintained virtual stability during February. In the midst of this, oil continued to position itself as the most relevant negative front in recent months, with a new annual decline of 11.4%. With the above in mind, the trade deficit increased to US$1,479 in January. Finally, consumer confidence held up during February at considerably low levels.
Inflation and interest rates
In its second monetary policy meeting, the Board of Directors of the Banco de la República (JDBR) increased the intervention rate by 25 points, such that it reached 13%. The decision was unanimous demonstrating a healthy alignment among the co-directors that the repo rate bullish cycle was soon to end.
As we anticipated, the increase in inflation was the main reason for the Issuer to carry out a new increase in the policy rate. In this regard, for the technical team it is clear that the recent evolution of this indicator suggests that it is approaching its ceiling. In fact, for the Bank, inflation expectations already incorporate the positive news on recent price developments. In addition, it is important to highlight the upward revision in the GDP projection, from 0.2% to 0.84%, for 2023 by the technical team.
On the other hand, DANE reported that the CPI presented a monthly variation of 1.05% during March. “This record exceeded our expectation by 5 points following a bullish surprise in the basic component. As anticipated by our basic price monitor, monthly food inflation was 0.91%, such that the annual variation of this component reached 21.8%, a minimum since May of last year. As for core inflation –without food–, it surprised on the rise as a result of the greater inflationary persistence in the category of services”, the researchers maintain.
They indicate that “incorporating this result, we project that consumer inflation will end this year at 9%. In turn, that the decline in inflation would begin as of this month”.
Exchange rate
On the other hand, the Colombian peso returned to a strengthening path, registering an appreciation of 4.2% against the dollar during March. The trend was explained by the increase in appetite for risk in emerging markets and lower perception of relative risk in the country. In fact, the international context was characterized by a certain optimism in light of less financial stress and an improvement in market prospects.
At the local level, the economic and political institutions stood out in the discussions regarding the reforms that the government has been promoting. Therefore, an improvement in the perception of country risk would be propitiating a greater appetite of investors for local assets.
“Although the price of the Colombian peso has recovered ground, restrictive financial conditions limit the recovery of our currency. We anticipate an eventual rebound in the exchange rate and we expect it to close the year around the $4,690 area”, analysts maintain.
The external conjuncture
In the foreign market, concerns about a crisis in the banking sector, which began with the fall of Silicon Valley Bank, due to the liquidity measures adopted by governments and monetary authorities, partially dissipated.
In this way, the market began to discount a pause in rate adjustments by the Federal Reserve, to the extent that the signs of a deterioration in economic activity in the US would give impetus to consolidate an effective correction of the prices towards the target level.
Regarding the United States markets, the interannual rate continued to fall in March, for the ninth consecutive month, reaching 0.1% to stand at 5% annual.
This is the strongest drop since the indicator began to decline in July 2022 and, according to the agency, the inflation rate of 5% is the lowest since May 2021.
In monthly terms, on the contrary, consumer prices rose by one tenth in March (compared to the four tenths they rose in February), at a time when the Federal Reserve (Fed) is closely analyzing the effects of price rises. types in prices.
Undoubtedly, the housing index was the one that contributed the most to the monthly increase in prices, with a rise of six tenths.