With the message of urgency for a reactivation plan that does not arrive, the country’s economic dynamics have recently been characterized by a stronger than expected resilience, thanks to which areas such as the labor market, the ISE and consumption remain in place. acceptable levels, despite the fact that investment is not yet in the ranges needed to be competitive and put a stop to the slowdown.
Fear over the bad streak in the local market led to the belief that there was a possibility of falling into recession, at least technically, or that unemployment would skyrocket above 12%, and also raised fears of an escalation. that would bring the dollar very close to the historical figures of 2023. However, none of this happened and on the contrary, the economic rhythm has been better than expected.
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While this is good news, a recent analysis of the accounts and indicators showed that the good progress is more the result of a change in the external and intrinsic conditions of the Colombian economy, than due to the strategies and plans of the National Government, and that this trend could be maintained at least for the remainder of the year. year, opening a panorama of alternatives to take advantage of.
Consumption engine
BBVA Research published its update of the country’s economic outlook this week and reported that the national economy is showing signs of recovery that should be consolidated in the coming quarters. All this mainly due to internal demand, that is, what Colombians consume, spend or invest, which will be the engine for the economy to grow 2% this year; 2.8% in 2025 and 3.5% in 2026.
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In a conversation with Portafolio, Juana Tellez, chief economist of this team, explained that, according to the new projections, domestic demand will continue to be the main driver of economic growth in the remainder of 2024 and during 2025 and 2026. since they predict that this indicator will grow by 2.8% in 2024, 5.5% in 2025 and 3.8% in 2026.”
“It all starts with durable goods. We consume a lot of goods of this type in the post-pandemic, then we stopped the consumption of merchandise such as refrigerators, televisions or equipment that are part of this classification, but in the future the improvement will return and there will undoubtedly be a better dynamic,” he added.
In this sense, Tellez noted that in the consumption of services “it is going to remain much quieter because we have consumed many services and today there is no room to grow so strongly in the next two years. Likewise, and this is a good thing, investment is improving, marginally, but something is already seen in equipment machinery, civil works, investment destinations other than housing.”
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The BBVA Research team was specific that we should not expect the improvement to show spectacular results next year, but that there will be gradual progress that will help reinforce the lines that are currently in red and could lend a hand to move forward. the growth.
What is helping?
When reviewing the factors that aligned so that household consumption and companies is increasing, the analysts in charge of the report pointed out that it is all part of the constant fall in inflation and the drop in interest rates. The sum of these two items is leading to people having more free money or seeing credit as an attractive tool to buy what they want.
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“The real income of Colombians has increased, because inflation is falling, because interest rates are falling. So, if they decide to ask for a loan, they will do so at lower rates, but also because their accounts have to pay less for their loans. debts. That is a combination of a labor market that endured and that now perceives the benefits of a change in trends,” said Juana Tellez.
Regarding the cost of living, these experts indicated that although for this year it would close above 5%, by 2025, inflation is expected to continue slowing and close at 3.8%, within the Bank’s target range. of the Republic and that by 2026 it will be consolidated at over 3.4%; if the Market conditions remain as they have been until now and do not reverse their positive trends.
This decline will be driven by the moderation in food prices, which already showed slight increases in 2024 and will continue with this trend. With this, they noted, inflationary pressures on the basic basket will be alleviated, favoring economic stability and strengthening the purchasing power of Colombians.
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“The Bank of the Republic has adopted a policy of gradual cuts in rates interest rate, accumulating a reduction of 275 basis points throughout 2024. It is expected that the monetary policy rate, which will close 2024 at around 8.5%, will continue to decline until reaching 6.0% in 2025, and will maintain at that level in 2026,” highlighted the chief economist of BBVA Research.
However, Alejandro Reyes, team economist, made it clear that “the Bank of the Republic will continue to closely monitor inflationary risks, including possible shocks in energy prices or the impact of wage adjustments on underlying inflation.”
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Be careful about investment
Building on the good news already mentioned, the report concludes that investment in infrastructure, non-residential buildings and machinery will be key to sustaining the modest growth of the economy, especially when infrastructure will be driven by increased spending by regional and local governments, while mining exploitation will continue to provide resources.
“Non-residential construction will take advantage of the low commercial vacancy and economic recovery, which will boost demand for this type of construction. Finally, investment in machinery will recover as the industry regains dynamism, supported by the recovery in the consumption of goods and the current high use of installed capacity, which will require companies to increase their productive capacity to respond to the increased demand. ”says the report.
Finally, these analysts stated that beyond the economy being resilient and showing better dynamics than expected, it cannot be overlooked that a reactivation plan is urgent and that as long as there is no specific roadmapthe country will continue to drift, wasting the potential it has to grow.
