Although GDP data for the second quarter in Colombia was slightly below expectations, JP Morgan is convinced that things in the local market are moving in the right direction and that little by little everything is returning to its normal course after a long period of high turbulence. caused by inflation spikes, economic overperformance and rate hikes, among other factors.
For the largest bank in the United States, although there is still lending to be done Pay close attention to investment and to not continue generating episodes of uncertainty that complicate recovery. The country is consolidating itself in the region as an example of resilience and therefore it is crucial to maintain macroeconomic stability.
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Portafolio spoke with Diego Pereira Garmendia, executive director and chief economist for the Southern Cone and the Andes at JP Morgan about their view of the current state of the economy, the recent announcements by the Government and the projections for what is coming in the second half of 2024 and the beginning of 2025, both economically and in terms of the points to be taken into account in compliance with the fiscal rule.
According to Pereira, the first thing to keep in mind is that for them Colombia is “an economy that has already processed the required adjustment, after a period in which domestic demand reached far above its potential,” which is why we must begin to build on the reality that lies before us.
JP Morgan
EFE
“The economy has dealt with previous imbalances, such as high inflation and current account deficit, and is stabilising. For two quarters now, the gap between the level of economic activity and its potential has been close to zero, indicating that the economy is at a point of stabilisation,” he said.
In this sense, he believes that “what needs to be done after a cyclical correction like the one Colombia has experienced, it is simply a matter of keeping the ship’s helm stable. Do not contaminate the actions of the private sector, the decisions of households, the decisions of companies, increasing idiosyncratic uncertainty. Maintain the macroeconomic order that allows the Central Bank to continue with the policy it has carried out since December of last year of correcting the monetary stance.”
If this is achieved and what he calls “macroeconomic order” is maintained, the JP Morgan spokesman assures that things will gradually return to their potential level and even points to a GDP growth of 2.7% for next year.
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Do not overheat the engine
Taking into account the data that projects the economy’s recovery for 2025 and the urgent calls made by other experts for growth of more than 3% annually, Diego Pereira assures that trying Forcing growth above this level could generate macroeconomic imbalances.
“I think that the potential for the Colombian economy to grow is 3%, if not less than that level. And, to put it in other terms, those policy measures that seek, from the demand side, to force car engines to perform above what they are capable of, then sooner or later that engine will surely have serious problems. And instead of taking us to our destination, the car will abandon us because the engine is broken,” explained this expert.
However, he acknowledges that there is a consensus that Colombia has little room for manoeuvre. to implement countercyclical fiscal policies because economic activity is already close to its potential, while maintaining that Public sector revenue estimates have been overly optimistic, increasing the risk of fiscal deficits exceeding the fiscal rule targets.
Diego Pereira Garmendia, Executive Director and Chief Economist for the Southern Cone and Andes at JP Morgan.
Courtesy.
“We agreed with those who said that the revenue estimates made by the public sector looked very constructive and that this put at risk the effective deficit above what was established in the objectives of the fiscal rule. This was obviously evident this year. I agree that there is a risk that is perhaps not similar quantitatively, but qualitatively for the year 2025, even though we are expecting growth to strengthen at the margin,” said the JP Morgan spokesperson.
Forced investments
During his talk with Portafolio, Pereira spoke about the forced investment plan that President Gustavo Petro has mentioned on several occasions and said that it is an already established tool and that it would not constitute anything new for the economy, although he was clear in warning that for them it may not be the right path.
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“One, the vehicle already exists, that is, it is not new, it has been basically oriented to the agricultural sector, but perhaps it is not the optimal way to face a Colombian financial market that has grown, that has developed in the past decades, that today offers much more wealth in terms of financial products, in terms of financial innovation,” he began by saying at this point.
In this way he indicated that perhaps “there are other vehicles to be able to somehow “In this way, we can promote certain sectors that the administration considers can help to increase the growth of the economy, generate more employment, quality employment, etc. Perhaps this particular vehicle, forced investments, is not the optimal vehicle, and perhaps it is worth discussing another type of implementation, another type of macro-financial arrangement in order to promote certain sectors or to give some credit advantage, let’s say, to certain sectors.”
Economic growth
iStock
Finally, Diego Pereira warned that we should not lose sight of the context of the possible recession in the United States, since this will have a direct impact on the local market, whether we like it or not, and therefore it is necessary to avoid policies that may increase uncertainty and volatility in the country.
Likewise, regarding labor reform, he concluded by saying that his role is not to say which policies should or should not be implemented by governments or in a certain country, although he did clarify that the formalization of the economy is crucial to increase potential growth and because of this we must bet on measures that can slow down this process, which could have a negative impact on long-term economic well-being.
