Amidst the expectation of knowing how long the slowdown will continue to play against the economic dynamics that the country should have, and when the recovery of the lines that are still in the red will begin, this week good news was known that would serve as a basis for thinking that things will improve in the second half of the year. This year they will maintain the slow but positive pace.
The paradox is that the good news comes from households, a part of which is affected by problems such as inflation, loss of purchasing power, rising credit costs and economic instability, but whose consumption is showing signs of recovery, with growth forecast for the coming months.
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This is detailed in a recent report by the Economic Research team from Banco de Bogotá, according to which private consumption in Colombia has begun to show signs of recovery during 2024, driven mainly by greater household willingness to purchase.
Analyzing the GDP balance for the second quarter of the year, delivered by Dane, these analysts highlight that household consumption “recorded its highest annual growth in a year, due to the greater willingness of families to purchase, especially goods for home equipment and recreational services.”
Fall in consumption
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With this on the table, the report warns that the bad streak of 2023 is gradually being left behind, which for them was a year characterized by weak consumption and the caution of Colombians in the face of what was to come, especially with the possibility of falling into recession that was not completely averted, so optimism returned.
Among the factors that are influencing the recovery of consumption, researchers highlight “the change in financial conditions due to the process of interest rate cuts by the Bank of the Republic, the greater purchasing power of Colombians due to the increase in salaries above inflation and the resilience of labor income due to the strength of hiring in the services sector.”
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For them, the “improvement in alternative income” has also been important. from families such as remittances, government monetary transfers and financial returns, mainly, would allow private consumption to go from an annual growth of 0.8% in 2023 to 1.5% in 2024 and 2.4% in 2025.”
Financial provision
Delving into how the reduction of interest rates by the Bank of the Republic has facilitated the taking out of loans, allowing families to access more affordable loans to finance consumption and investment, Banco de Bogotá explained that after reaching the lowest debt levels since 2016, the change in the market has encouraged more people to leverage their economic growth through credit.
Colombian pesos
“Families are in a better financial position compared to that observed in 2022 and 2023, which would allow them to take out credit again once rates are at more attractive levels. Likewise, the interest rate for loans consumption has decreased and has been related to the improvement in private demand.”
This incentive has also boosted the real estate market, with an upturn in home sales and an annual growth of the mortgage portfolio of close to 20%, favouring the reactivation of the sector.
Stability in income
The change in this trend has not been due solely to the fall in interest rates, as other elements such as the stability of the labor market, income growth and post-pandemic recovery have contributed to the dynamism of consumption that is also projected for the coming months.
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“The change in the economic structure after the Covid shock, where services have gained greater relevance, has allowed the number of employed people not to be greatly affected by the recent economic slowdown. Thus, with resilient job creation, labor income has not been severely impacted,” they said.
In this way, they explained that the relationship between unemployment and growth seems to no longer be the same as before, which would be explained by the change in job formation, in which sectors that were traditionally the engine of the economy (construction, commerce, agriculture and manufacturing) went from explaining 53% of jobs between 2017 and 2019 to 49% in 2024.
“The improvement in the service sector, which is labor-intensive, It has been supported by the greater demand from Colombians for recreation and services in general, as well as the rise in tourism, which is nothing more than a greater consumption of services by foreigners,” they highlighted.
Recession
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Remittance effect
Finally, for Banco de Bogotá analysts, it should not be overlooked that remittances, monetary transfers and financial returns have increased in 2024, representing a significant source of income for many families, a situation that has been added to the increase in salaries above inflation and reinforced purchasing power, which translates into greater dynamism in private consumption.
“With this favourable context, projections for private consumption are optimistic. It is expected to grow by 1.5% in 2024 and 2.4% in 2025. However, for these figures to materialise, it is crucial that households regain their confidence in the economy. Government policies, focused on offering economic and social stability, will be essential to consolidate this growth trend,” they concluded.
