Although it has already become clear that Colombia’s economy will grow in 2024 and that the GDP report for the fourth quarter, which will be released in mid-February, will show numbers in green, the recent results of the Economic Monitoring Index once again arouse suspicions among analysts, given that they confirm the stagnation of private sector economic activity for more than a year.
Reviews made by Portafolio to the Dane data and the conclusions of various economic study and research centers, left on the table that Colombia’s economic growth in the last year has been marked by an outstanding contribution from the public sector, while the private sector shows signs of stagnation.
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Opposite poles
Firstly, according to data from the Economic Monitoring Indicator (ISE), activities such as public administration, education, health and recreation have been determining factors in economic performance, with positive interannual variations that have exceeded, in some months, , the total growth of the country.
For example, in April, the public sector grew 13.3%, compared to growth general 5.9%, consolidating itself as the main engine of the economy; while the private sector has faced significant challenges that have limited its contribution to growth.
Economic growth
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Dane figures show that manufacturing and construction industries, two of the most relevant sectors, recorded sustained falls throughout the year, with figures such as -7.6% in March and -4.0% in June. This negative behavior is also reflected in activities such as commerce and transportation, which have shown marginal variations close to 0%, revealing stagnation in key areas for the country’s economic dynamics.
For the analysts at Investigaciones Bancolombia, we must not overlook that the economy has recovered thanks to the dynamism that lower interest rates have allowed in private activity. However, they warn that this progress has been affected by the moderation of public spending, which would lead to the economic pace continuing to decelerate in the coming months.
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“The better dynamics of commerce, services and accommodation indicate that the process of recovery of private sector activity continues. These November results leave positive signs regarding the strengthening that domestic demand is achieving. However, the result of manufacturing activity remains uncertain, while its recovery is key because, together with construction, they chain positive effects on other sectors,” they noted.
Having said this, he states that overall, “the process of progress has occurred thanks to to the recovery that lower interest rates have allowed in private activity. However, this progress has been affected by the moderation of public spending and its effect on public administration, which is in line with our current perspective.”
Employment in Bogotá
Source: Bogotá Mayor’s Office – Official Page
Public administration
In Portafolio’s analysis of the Dane data, it stands out that another affected private sector has been information and communications, which has registered consistent contractions, with notable falls such as -5.4% in October. Similarly, financial and insurance activities, which had a rebound of 8.9% in December, accumulated significant losses in previous months, such as -6.9% in March and -2.4% in February.
To this we can add an analysis of Corficolombiana, which reaffirms that much of the growth so far has been driven by public administration, a sector without which the country would be close to stagnation. total of the economy, as warned by Cesar Pabón, director of this research team.
“The data confirm that the Public Administration and the public sector in general have been the great driver of growth in recent months, while private activity remains stagnant. In fact, in some months last year, if you eliminate the participation of the public sector, you see that the private sector was in fact in several months and remained in contraction. Therefore, it is evident that the Public Administration has gone and was the main protagonist of growth last year,” he said.
The Corfi data specifically indicate that the annual variation of the Economic Monitoring Index for November is 0.6% in its seasonally adjusted series and taking into account all its components. When reviewing this indicator without the contribution of the public administration, its growth is barely 0.1%.
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A reactivation plan
This panorama, although it leaves the National Government and the contribution it has had in the economic development of the country during the last year in a good position, also validates the theses of those who affirm that it is necessary to implement an economic reactivation plan, even if it is the which was announced in mid-2024.
Mauricio Hernández-Monsalve, senior economist at BBVA Research, also spoke with this medium and said that the recovery of the economy for the coming months seems to be feasible, driven by several key factors, such as private consumption, which remains the main driver of the economic growth and some incentives to increase production.
Industry
Courtesy
“In addition, the transport sector is showing positive signs of recovery, with increases in road freight transport and an increase in the number of travelers. This recovery in transportation, along with the rebound in consumption, suggests that the economic recovery continues to advance, although gradually,” he indicated.
However, he warns that the moderation of public spending continues being an important factor to take into account, since public employment, which had been a key driver of growth in recent quarters, especially in sectors such as education and health, has recently lost some dynamism.
“This limits the growth potential of these sectors, which still rely heavily on state financing. The slowdown in public employment could, therefore, generate containment in the service sectors, which experienced growth driven by public spending,” he concluded.
Thus, as long as a plan is not implemented to boost the red sectors of the economy, the country will continue to be exposed to a possible loss of strength in government spending that could affect growth. Possibility that does not seem far away, taking into account the cash crisis experienced by the Ministry of Finance.
