In a new review of the country’s economic projections and the challenges ahead for the third quarter of this year, the American bank JP Morgan assured that the pace of growth and other indicators, although slow, are on track and moving in the right direction.
However, he referred to the possibility of a constituent assembly, Although the Government seems to have ruled this out, this organisation is still concerned.
According to this banking institution, the national current affairs have at their core monetary policy and the rise in interest rates, a point on which it stressed that there are milestones in a battle that has not yet been won, as demonstrated by the opposing positions regarding what the Bank of the Republic should do in the future.
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Analyzing this point in depth, JP Morgan begins by recalling that at the last meeting of the Board of Directors of the Issuer, five directors voted to reduce the interest rate by 50 basis points, while two voted for a more aggressive cut of 75 points, which for them is evidence of the discrepancies that persist in the market.
“This consensus recognizes that favorable conditions have emerged to continue moving monetary policy toward a less contractionary stance, based on the downward trend of both headline and core inflation and their expectations, the moderate pace of economic growth, the significant reduction in the current account deficit, and the prospect of a possible easing of global financial conditions,” they said.
JP Morgan is a very influential bank in the economy.
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The analysis adds that it is essential to the importance of maintaining prudence in the process of cutting interest rates, given the persistent risks to the behavior of inflation, especially in areas such as the evolution of food prices, the unsustainable fiscal cost of continuing to postpone increases in certain regulated prices (diesel), the downward rigidity of inflation in some services, and possible exchange rate pressures amid external volatility.
In this regard, he agreed with the Bank of the Republic that he cannot ignore factors such as “inflation in services remains high, around 8.0%, due to the rigidity of important items such as rent and meals out”, while “the absence of exchange rate pressures cannot be taken for granted in an environment of high external uncertainty and volatility in oil prices”.
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Economic growth
JP Morgan also listed inflation projections and said that The company expects the underlying figure to decline to 5% year-on-year by the end of the year, although facing upside risks, especially in the rental sector. It added that headline inflation is projected at 5.7% year-on-year, slightly above previous estimates, with uncertainties especially in food and regulated goods prices.
“Given these projections, which have a high degree of uncertainty, particularly for food and regulated items, the overall Consumer Price Index is now projected 20 basis points above the April estimate. The upward revision for 2024 implies higher inflation for next year via indexation of some CPI groups. However, the staff sees the cumulative effects of monetary policy, coupled with an output gap that is projected to be more negative for next year,” they argued.
Economic growth
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On the other hand, in the chapter related to the GDP, he stated that economic growth remains slow and in the coming months will be subject to uncertainties both external and internal. as internal, including the response to domestic demand and the reforms presented to Congress.
“The Staff now projects economic growth for 2024 of 1.8% annually, higher than the growth projected in April (1.4%). For the remainder of 2024 and into 2025, economic activity levels are expected to continue to recover, in an environment of gradually more favorable external financing conditions and less restrictive monetary policy over the forecast horizon,” they explained.
JP Morgan also indicated that the expected path of the rate was maintained Fed interest rate cuts, with two for the remainder of the year and four more in 2025. In addition, the risk premium trend is on the rise amid high uncertainty about the future of the country’s fiscal accounts and a level of public debt that is expected to increase over the forecast horizon.”
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All this, while positive news, according to these analysts, will be subject to external factors (global political tensions and monetary policy in advanced countries) and internal factors (uncertainty about the evolution and impact of the reforms presented to Congress and the response of domestic demand to local financial conditions and the announced public spending cuts).
Constituent and Issuer
In its last section, focused on urgent challenges, this bank maintained that the most important thing for Colombia at this time will be to maintain macroeconomic stability, strengthen investor confidence and get things moving. a recovery plan that focuses on injecting resources into those productive sectors that are still in the red.
In this way, they stated that in addition to the prevailing uncertainty surrounding the global economy, there are two risk factors, starting with “the possible changes in the BanRep Board that are coming in February and the market perceptions associated with possible changes in the reaction function.”
Gustavo Petro
Presidency
“A more heterodox reaction function to prevailing fiscal risks could exacerbate downward pressures on the local currency, counteracting the desired effect of lower rates,” they warned.
Secondly, they argued that the risk of greater uncertainty will grow “if the government decides to move forward with the call for a constituent assembly, which could lead to a scenario similar to the one experienced in Chile in the years 2020 to 2022.”
In the face of the latter, it should be noted that the Government itself has come out to say that the constituent assembly is a discarded idea, since there is not enough time for its execution and at this moment they will focus their efforts on other fronts, such as social reforms, especially those on health and labor, which are already in Congress.
