Juana Téllez, Alejandro Reyes and Mauricio Hernández, BBVA Research economists for Colombia, presented this Thursday, July 14, the update of the entity’s economic projections for the rest of the year.
In this presentation, they touched on topics such as the country’s economic growth, the increase in the cost of living, the decrease in Colombian savings, the rise in the dollar and the future scenario.
Regarding what is estimated could be a possible scenario, the bank sees annual inflation close to 5% by the end of 2023, with moderate consumption trends and an increase in savings percentages, both family and national. At this point Hernández also refers to the conditions that have made the national economy grow in the midst of what appears to be a global crisis.
The US$5 billion increase in remittances compared to the previous year, especially from the United States, and the devaluation of the Colombian peso have been key in increasing spending, but they are not projected in the same way for 2023. This situation stems from of a process of recession or limited growth of the global economy. While for 2021 world GDP increased by 6.2%, it is expected that in 2022 it will close with a growth of 3.4% and continue to fall in 2023, with an increase of barely 2.5%.
“Current inflation will eventually come down,” Hernández says. This, to the extent that the central banks carry out their containment measures, such as keeping interest rates high. In the case of Colombia, what has determined economic growth has been the increase in private consumption and investment, the latter even exceeding the levels prior to the health emergency.
These consumption dynamics, both personal and business, are related to improvements in formal employment, high flows of remittances and increased credit. The latter is especially important, as consumer credit has grown steadily, reaching peaks of $3.3 trillion per month, an increase of almost 100% compared to the figures for 2021 ($1.7 trillion per month).
Despite the fact that the rate of growth is good, the fact that it is based on the increase in private consumption has negative effects on the saving rates of Colombians. For this reason, the economic slowdown that can be seen coming would have a positive effect in this regard.
“In order to control inflation and achieve sustainable growth in the medium term, The Bank of the Republic will take its interest rate to 9%”says Juana Tellez.
Likewise, by 2023 the mining, manufacturing and public services sectors are expected to grow below GDP levels. The agricultural industry, financial services, real estate, communications, and the commerce, hotels and restaurants sector should grow at the expected rate of GDP, while construction, entertainment, the government sector and professional services will grow above this figure.
At the time of assuming as President of the Republic, the government of Gustavo Petro must materialize and consolidate progress in energy transition and environmental sustainability to weaken economic dependence on raw materials, specifically oil.
In addition to this, it must promote investment and formal employment to increase the potential growth of the economy and improve the quality of life of Colombians.
Among the final projections, it is maintained that the medium-term fiscal framework estimates a lower fiscal imbalance and a lower debt. However, the challenges for the incoming government are important in matters such as public spending, social investment and the devaluation of the peso to reduce foreign debt.
“The decisions of the new government will be key to defining the details of public finances in the coming years”Juana Tellez.