Why GDP rebounds while the household economy stagnates

Why GDP rebounds while the household economy stagnates

‘The economy is recovering’ It is a phrase that economists, statesmen, academics, and the government repeat with impetus. An expansion of 10.7% of the gross domestic product (GDP), “the greatest growth in its history”, It is one of the data with which former President Iván Duque evidenced the results of the reactivation. “More than 95% of the jobs that the pandemic took from us have been recovered; we have achieved a reduction of more than 16% in multidimensional poverty in the interventions we made in 2021 (…) All this is happening”assured the former president a couple of months ago, before leaving the House of Nariño.

(How inflation of 10.21% affects the upper, middle and lower classes).

And while it is true, all this is happening in Colombia, for the 19.6 million poor people in the country, 39.3% of the population, these figures and that economic boom seem to have another meaning. For four out of ten Colombians, the reality at the end of 2021 was to live with less than $354,031 per month, which in a household of four people represents total monthly income of $1,416,124, according to the poverty lines defined by the National Administrative Department of Statistics (Dane).

Colombia is internationally classified as an upper-middle income country according to the World Bank, a group that makes up the economies in which the gross national income per capita was between US$4,096 and US$12,695 in 2020. Today’s money in Colombian pesos is between around $16.9 million and $52.4 million.

The shock of the covid-19 pandemic led the national economy to fall to -7% in 2020 in its GDP, raised unemployment rates to a maximum of 21.4%, and caused 3.5 million people to fall into condition of poverty, with which 21.0 million citizens were reached in this situation. But with the recovery of 2021 thanks to the reactivation of the economy, the reopening of sectors and companies, the labor market has been resuming its conditions and with it also a good part of the income of families.

During 2021, in fact, The monetary poverty indicator, the one that measures whether a person is poor or not according to their income, went from 42.5% of the population in 2020 to 39.3%, a reduction of 3.2 percentage points (pps). However, there is still a debt with 2.15 million people who continue to live in poverty and who were not before the covid-19 emergency.


According to Dane, the national statistical authority, a fundamental element in the recovery of families was the monetary transfers from the government. Through the Solidarity Income program alone, the State has injected almost $14.4 billion, a monthly transfer of $200,000 that currently covers 4 million households. This program was born as a support subsidy for families in conditions of poverty, extreme poverty or vulnerability, and that were not covered by other subsidies such as Families in Action, Youth in Action, Colombia Mayor and VAT compensation to households of minors. income.

(24% of small entrepreneurs in Latin America live in poverty).

“If in 2021 we had assumed, hypothetically, the absence of all institutional aid schemes, we would have gone from 42.5% to 42.9%, an increase of 40 basic points (0.4 pps), which does not happened”, said the former director of Dane, Juan Daniel Oviedo, when the latest poverty figures were made official, at the end of April.

According to official statistics, in Colombia currently 31% of the population (15.5 million) is classified as vulnerable, those who are not in poverty, but whose per capita income is between the poverty line and $690,524 per month.

Poverty in Colombia.

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While 27.8% of Colombians (13.89 million) are in the middle class, a group made up of those whose income per capita within the household is between $690,524 and $3,718,204 per month. Only 1.8% of the population, 921,000 people, are part of the upper class of the country, all those who have a per capita income of more than $3,718,204 per month. “The government did not collaborate with me at all, I had no help. I worked selling red wines in a park. With all the people locked up who were going to go out to play, the games were over, I didn’t have a way to work either and I couldn’t get food. The neighbors helped me with any pound of rice or $2,000, so I was able to support myself,” says María Victoria Rodríguez, who at 55 years old watches over her three older brothers and her two children.

María Victoria assures that, despite the fact that the strongest part of the pandemic has passed and things have returned to the way they were before, she has not recovered her standard of living.

“Once again I am selling sweets, cigarettes, red wines, I do not lack food, but for what I had before, which I had three meals, now it is practically only one. Everything has gone up in price. Before there was for breakfast, lunch and dinner, now only for lunch. Before I could buy a piece of meat, but not anymore. Here my children have looked for work, they do not give them and if they do, it is for a month. There is no work. And that thing about the situation being fixed, I don’t think so.”

Before the start of the quarantine in 2020, there were around 7.6 million households that consumed three portions of food per day. Currently only 6.35 million can do so. Despite these figures, there is a better outlook than a year ago, when the effects of the crisis deepened. But everything is made worse when looking at households that do not eat even three times a day. 22.6% of all families in the country consume only two meals, which means 1.8 million households. If we go on to talk about those who only have access to one meal a day, every day in Colombia 89,750 households only manage to put a plate of food on their table.


The living conditions of many families are already under pressure due to their low availability of income, and the increase in prices in recent months has been an even greater challenge, as a result of a global inflationary phenomenon derived from complications in supply chains, and more recently, due to the war in Ukraine after the Russian invasion, which has disrupted the price of commodities and various agricultural inputs at the international level.

This has ended up translating into a rise in the consumer price index (CPI) which in July reached 10.21%, particularly marked by high inflation in the food component. Among the products that have increased their prices the most compared to those of a year ago is the potato, which accumulated an inflation of 110% last March, although in recent months it has relaxed thanks to the new harvests. Like oils, onions, eggs, poultry and beef, as well as fresh fruits, all have risen in price.

And it is precisely this category, that of food and non-alcoholic beverages, one of the items that weighs the most in the family basket of lower-income households. This, according to César Tamayo, Dean of the School of Economics, Finance and Government at Eafit University, has to do with the fact that “Inflation tends to have a disproportionate impact on people with lower incomes, since food and public transportation occupy a higher percentage of their income in their life basket, and that is why inflation affects them more.”

Camilo Balaguera, an electronics dealer in Bogotá, acknowledges that in the last two years, and after the health crisis, his purchasing power “was considerably reduced.” “People give priority to what is food and shelter, electronic things are not of first necessity, that is why the work was reduced a lot.”

Camilo says that since then he has had to rationalize what he buys and look for cheaper options. “Everything is much more expensive, the peso has been terribly devalued, I buy a lot in dollars, and there are things that are 50% or 40% more expensive today. Suddenly, the economy has stabilized a bit, but if one says that it has improved, no, everything tends to rise.”

(These would be the income of the upper class in the country).

In fact, according to the Dane Social Pulse survey, 46.6% of households still consider that their situation is worse today than it was a year ago; 63.1% of them say that they are less likely to purchase basic necessities, such as clothing, shoes or food. By June 2022, 76.9% of households reported not having the ability to save and, even more serious, 7.7% indicated that they did not even have any income.

For some experts, such as Iván Jaramillo, a researcher at the Labor Observatory of the Universidad del Rosario, the reactivation has not been satisfactory enough, and that is why households do not seem to feel it.

“This recovery of the economy is a rebound effect, since we entered a recession in 2020 and 2021 it is natural in the economic cycle, while in employment it is more a matter of employment than of decent work. Inflation is one of the most regressive measures among economic variables, it is today a global issue, and this recovery of the economy does not reach households due to inflation, which has not been controlled, and because in employment we see also a very strong pressure of informality”, analyzes Jaramillo. In Colombia, the informality rate is 58%, a figure that highlights this pressure.

And many Colombians see it that way. Although Nidia Castro is already a pensioner and has an income, her situation has not been easy either. “The economy of our home, like that of the whole family, is bad. The lack of employment and opportunities for work, both for young people, and for people like me who at our age did not get a decent job , it does affect the economy of our country”.


Despite this perception, the explanation behind the growth and performance of the economy lies in private consumption, and in particular that of households. In the GDP of the first quarter, the latter grew 12.2%.

Even during May 2022, according to figures from the firm Raddar, the spending of Colombian households increased 8.8%, which meant a consumption of $73.8 billion at the national level and led to the accumulated of the first five months of the year to $362.6 billion.

This, however, would be especially leveraged by high-income households according to Raddar.while families with medium and low incomes would be contributing to a greater extent via credit or thanks to a slight recovery in their labor income.

“There were two types of households, those that were able to save during the pandemic, and others that were not. What has happened is that a good part of these households have not reconstituted those savings levels. And it is something that is felt, there were people who did not receive Solidarity Income transfers despite being suitable candidates for it. They are people who were affected for two years, who are improving their income, but continue with precarious conditions. Although there is something that even draws a little attention to the level of spending reported by the economy, bearing in mind current inflation. And I think it has to do with the fact that some households had the opportunity to save because they work in formal companies and had a certain solvency”, says Andrés Langebaek, executive director of economic research at Grupo Bolívar-Davivienda.

Such is the case of Amalia Mendivelso, who works in a call center, and unlike many, feels that her situation is more beneficial today. “The pandemic did not affect me financially, I continued with my normal job. They left me at home, the salary was the same, what helped me was precisely with transportation and time. They gave us the connectivity subsidy. The company told us that we are no longer coming back, and that the contract is to work at home and that is how I am today”.

Despite this, there are many cases in which Colombian families do not perceive this rebound in the statistics, and it seems that the growth rates reflected in GDP, macroeconomic accounts and figures from international entities are yet another measurement of economists. and academics, that of the real finances of the families in their day to day and even of what they can or cannot eat.


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