Public spending and oil support GDP expectations

Public spending and oil support GDP expectations

While the world continues to be mired in the crisis stemming from the Russian invasion of Ukraine, high inflation rates, and the lags in post-pandemic recovery, the Colombian economy navigates forward with figures -in the first quarter the national GDP grew 8.5%- and increasingly positive forecasts, to the point that in the last week two of the large international organizations revised upwards the figures for the country.

(Why higher GDP in Colombia and Latin America is not as good as it seems).

This Wednesday the Organization for Economic Cooperation and Development (OECD) raised its projection to 6.1%, which was previously at 5.5%, while on Tuesday the World Bank improved to 5.4%, from 4.4 %, the growth forecast. Likewise, the International Monetary Fund (IMF) ratified its bet in a report published in April: 5.8%.

Among the reasons behind these figures, according to experts, is the level of public spending maintained by the Colombian government, the income that enters the country as a result of current oil prices and a lag in the statistical rebound after the pandemic. .

“We have increased growth to 5.3% for 2022, it is a recent modification, because our previous estimate had been 4.8%. The reasons for Colombia to grow more than other countries are several, but one of the biggest is public spending”, assured Andrés Langebaek, executive director of economic research at Grupo Bolívar-Davivienda.

According to the economist, while most of the countries in the world in 2022 have reduced the strong fiscal stimulus that they had in 2020 and 2021 due to covid, in the case of Colombia this has not been the case, and expenses have been maintained. social benefits such as Solidarity Income, as well as hiring support for young people.

(World Bank forecast for global GDP lowered from 4.1% to 2.9%).

“Fiscal policy remains quite expansionary. And another element that explains why Colombia continues to grow more is that we have the advantage of being one of the countries that benefits from the crisis in Russia and Ukraine. We are oil producers, which is one of the commodities that has risen the most,” Indian.

similarlyBank of Bogota it also revised its growth projection a few weeks ago, and although they started the year around 4.5%, they are already at 5.5%.

“Since the beginning of the year and during the first quarter we saw positive figures and we made the adjustment. What has been happening with different entities such as the World Bank or the OECD, which recently revised their projections upwards, has to do precisely with that, the good results at the beginning of the year”, said Camilo Pérez, manager of economic research at Banco de Bogotá.

According to Pérez, the difference between these organizations and the local banks is that the updates of the national entities are more constant, while these entities take about six months, since they have periodic reports.

Pérez also mentioned that there is a statistical rebound that still helps a lot, and that in addition, Colombia has been reacting behind the rest of the world, so the rate of slowdown is somewhat lower. In addition, he highlighted the dynamics of household consumption.

Another entity that revised its forecast in recent weeks is Corficolombiana, which placed it at 6.5%, as well as Itaú, which took it to 5.1%. “Really, the performance of the Colombian economy has been very positive at the start of 2022, and that is the big difference to other economies, it is a very strong dynamic in terms of internal demand, not only for household consumption, but also by fiscal stimuli from the government”, Carolina Monzón, manager of economic research at Itaú, also indicated.

The economic studies center Anif also raised its review after the GDP data for the first quarter, and now stands at a projection between 4.9% and 5.3% in 2022 and at the April meeting of the Banco de la Republic was announced a rise to 5% from 4.7%.


But not all the actors have made recent revisions and such is the situation of XP Investments, which for several months already placed its projection at 6.5% for 2022, and has remained at this figure.

“Oil prices are helping a lot, and to some extent they compensate for the not so good behavior that investment may have this year due to the electoral issue, and that can put a little brake on this dynamic,” indicates director of macroeconomic strategy for Latin America at XP Investment.

(Pros and cons of Petro and Hernández tax proposals).

Pardo acknowledges that consumption is still very strong, and that to some extent it has to do with the fact that the fiscal impulse is still important. “Last year’s fiscal deficit was close to 7.5%, and this year it will drop to levels of 6%, which continues to be important, and that is also giving an important boost to private spending.” Likewise, it mentions that growth also comes with an important statistical drag effect.

Despite the optimism, other positions remain more cautious. BBVA Research continues at 4.5%. “Household consumption is the main determinant of economic growth. And furthermore, the good behavior of the Colombian economy is also determined by exports and fixed investment”, said Mauricio Hernández, the bank’s economist.

Hernández acknowledged that Colombia has several challenges to continue growing, such as increasing domestic savings, mainly from the government and households, increasing production capacity and improving employment.


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