The second negative data for 2022 on the performance of the US economy revealed yesterday by the Department of Commerce in that country, 0.2 percent for the month of April and June, is news that leaves Colombians worried, despite the fact that the president of that nation, Joe Biden noted that the economy is “on the right track” and that it is not surprising that it has slowed due to the Federal Reserve’s (central bank) move to cut inflation..
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With its main trading partner showing negative growth for two consecutive quarters – in the first, US GDP contracted by 1.6 per cent – it is clear that the effects on Colombia will not be long into the future, especially on the export side, although these effects will be felt more strongly. In 2023, as some economists point out.
“The global slowdown will limit the growth of the sectors most associated with exports (agribusiness)while moderation in consumption and foreign trade will reduce the performance of trade and transport,” warns analysts at BBVA Research.
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Analysts’ fears of a global recession, with the United States at the fore, are growing. This is evidenced by the results of the latest mid-year survey by Natixis for Investor Insight, which was conducted with 34 experts, with almost a quarter of those (24 percent) believing a recession is inevitable, while another 64 percent see a recession as a clear possibility in the six months coming.
in Colombia The repercussions of such a situation will not only be strongly felt in financial markets, but also in consumption, trade, production and employment.
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In addition to the effects in terms of increasing the cost of financing abroad for countries like Colombia and companies that need to seek foreign credit, due to the increase in premium risk implied by a potential recession in the United States, a greater reduction in the pace of that economy will also affect the pockets of thousands of Colombians. who earn their living from remittances arriving from this country.
The above because These remittances are closely related to the economic activity of the United States, with the largest volume of remittances coming into the country. In the first half of 2020 alone, $4463.2 million was entered into this concept, Of which, about 30 percent are from the United States.
“They could not be any worse in a way,” says Mounir Jalil, director of economic research for the Andean region at BTG Pactual, noting that there is always a very clear relationship between these two components, and when advanced economies cool down, migrants transfer less money to their relatives.
In the case of those living in the United States, according to the analyst, the situation may be more complex than in 2020, when the pandemic arrived and the US government raised its deficit to implement direct support programs for families. Remittances reached record levels at the time.But, “Contrary to what happened to us in 2020, I would say that this time we will see a decrease in remittances as a result of this recession,” explains Jalil.
Regarding the price of the dollar in Colombia, BTG Pactual notes that under the current conditions in the United States, the projection is that if there is no confirmation of a very strong recession and it is a more likely operation, at the end of the year, the coin should be around the sides of 4050 and 4100 pesos.
But if, on the contrary, what we see is a scenario in which all these fears of a strong slowdown materialize and it is no longer strong but a recession, then it is clear that the level that the company estimates is going up and is between 4360 pesos and 4,375 pesos today, and even slightly higher.
This is due to the decision of all investors to protect themselves by demanding dollars to escape the storm.
Analysts point out that the blow that the country will receive will also be on the oil side, because although its prices may remain high, there is no doubt that the demand will be lower for this raw material, So much so that large economies such as the United States, China, and the eurozone are slowing their growth.
Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean, says that although there are clouds in the economy now, they are more concerned about 2023.
“The region will grow on average, according to our forecast, 2.5 percent. Colombia really stands out, but the impact of the deterioration in the external environment is already being noticed. The recession is already practically in Europe; China is still very slow and it is not seen that it will emerge from the chaos it is experiencing quickly “.
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Added to this, he says, is the fact that the United States is now beginning to slow down. Related to this are the interest rates of the Federal Reserve and other central banks, which have already begun to rise and are beginning to reach levels that are beginning to slow economic activity in the large markets of demand for Latin American products.
The director of the multilateral organization told EL TIEMPO that part of this situation was reflected, on the one hand, on the prices of products that respond very much to those expectations of external demand.
“In 2023, the growth rate will be much lower in Colombia. It will have to face much higher financing costs in foreign markets, and external demand at very low levels. Therefore, it will be very important to have good macroeconomic management. Colombia has a very positive reputation for its macroeconomic management, and I believe the next government will maintain this good management.”
Felipe Campos, director of economic studies at Grupo Alianza, points out that given these forecasts, Colombia will have an economic impact next year, not in recession, but perhaps with 3 or 2.5 percent growth. “The Colombian financial market will feel the effects of a possible recession in 2022, but the economic effects will be in 2023.”
BBVA Research analysts agree that next year will see a less favorable international environment amid a healthy slowdown in domestic growth, so the most vulnerable households must be protected; Encouraging investment and formal employment with a view to increasing potential growth; Design reforms that increase the productivity and competitiveness of the Colombian production system and embody and underpin progress in the energy transition and environmental sustainability.
Economy and Business