Colombian economy: how it will fare in the second half of 2023 – Sectors – Economy

With a second quarter that could be the worst of 2023 in economic terms, inflation falling, but still at worrying levels (12.36 percent), a rate of unemployment around 10.5 percent at the national level, structural reforms (health, pensions and labor) in we will see, exchange rate that refuses to fall below 4,000 pesos, high interest rates and a hard-hit construction sector, among other aspects, Colombia ends the first six months of the year.

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Now the expectations are focused on what is coming for the second semester, a key period in legislative matters and in which changes and decisions are expected that allow the economy to land softly in the midst of the local and global slowdown, analysts and businessmen of the country agree.

In the second semester, the slowdown in the economyThey warned, but despite this, the consensus is that the country’s GDP growth will fluctuate between 1 and 1.7 percent, slightly better than projected at the beginning of the year.

It will not be easy to achieve this dynamic, since production sectors that were great drivers last year, such as commerce and the industry itself, this 2023 will not have the same strength and prominence.

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Added to the above is the expectation generated by the reforms that the Government is processing before Congress, since what is approved could generate a positive or negative impact on the future of the country.

The intensity with which the El Niño phenomenon arrives, the drop in consumption and investment are other factors that will keep the country on alert, since much of what happens with these will be reflected in the growth indicators of the economy in this second part of the year.

We must not lose sight of external factors, the analysts consulted point out, since these can play for or against the results, to the extent that they can affect the price of oil and, in general, the country’s terms of trade.

change of perspective

Although the outlook still looks complex, there is moderate optimism about the economic performance for the second semester. Most of those who at the end of last year or the beginning of this year estimated that the economy would grow below 1 percent in 2023 today believe that it will do so above.

But it is necessary for inflation to drop, investment to grow, confidence to return, there to be clear rules of the game, and uncertainty regarding structural reforms and the course of the country to disappear.

He world Bank It is one of those organisms that sees a more moderate perspective in this second half. In its most recent report of global projections known that Colombia would expand just 1.7 percent this year.

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However, this new projection is six tenths above its previous forecast, which was 1.1 percent for this year. By 2024, the bank expects the country to expand by 2 percent.

Other forecasts point to a similar range. For example, now in Fedesarrollo estimate an economic expansion this year of 1.5 percent, similar to the forecast of Grupo Aval, BGT Pactual, and the Organization for Economic Cooperation and Development (OECD), which in November 2022 pointed to a growth of 1, 2 percent.

BBVA Research economists were others who raised GDP growth in 2023 and now believe it will be 1.2 percent, five tenths above the 0.7 percent estimated in March of this year.

But what has led these entities and eleven economists to their forecasts for Colombia for this year, even for 2024?

One of the aspects highlighted by those consulted has to do with the way in which the economy has been slowing down, precisely what will make the landing softer.

But they also highlight the changes that will occur in some of the main economic variables in this second semestersuch as employment, the exchange rate, consumption and, of course, inflation.

“The better indicators of employment, private consumption and exports have led to increased growth projections for this year,” says Mauricio Hernández, an economist at BBVA Research, who considers, however, that the expected performance for the economy in 2023 and 2024 will be determined by an extension of the behavior already observed, the expected reduction in inflation, the effects of the restrictive monetary policy that will remain for a long time in the country and the impact of the slowdown in developed countries.

In his opinion, inflation will end this year around 9.2 percent, a figure very similar to that projected by Grupo Bancolombia economists, who are seeing the variation in the cost of living at the end of 2023 at 9 percent.

The entity’s analysts believe that this level of inflation can be achieved, to a large extent, due to a less challenging evolution of food prices and the segment of goods. Like other economists, they warn that there is a greater risk regarding the impact that the El Niño phenomenon will have during the second half of the year, “which could bias the behavior of food prices upwards.”

On this, the Bank of the Republic will be very attentive, because, as Leonardo Villar, its manager, said this Friday, The behavior that inflation shows in the future will have a lot to determine the moment in which the cut in the intervention rate can begin. Faced with which the pause in the rise that was faced unanimously in the sixth meeting of the year of the board is clearly a positive sign, as perceived by analysts and businessmen in the country.

It is clear to them that there will not be a cut soon, but it is likely that it will come at the end of the year. “Inflation should maintain its downward trend at a speed that will end the year in single digits,” estimated Munir Jalil, chief economist for the Andean Region at BTG Pactual.

The expert says that in this context the Bank of the Republic will maintain a contractive monetary policy, although in the last quarter it will begin to lower its interest rates.

Rates and dollars

And while most of the analysts consulted by Fedesarrollo expect that by the end of 2023 the Issuer’s rate will drop to 12 percent, at BBVA Research they bet on 12.5 percent, while other less optimistic analysts, such as Felipe Klein, of the BNP Paribas for Latin America, considering that the conservation at 13.25 percent, current level, to make its first cut of 50 points in the first quarter of 2024.

“We believe that monetary policy will have to be patient and stabilize in contractionary territory for longer than what the (market) consensus expects. In particular, we consider that the phenomenon of the child it will interrupt the decline in inflation expectations towards the end of the year,” he said.

Regarding the exchange rate, although in recent weeks its value has achieved get away from 5,000 pesos, the falls observed are still not able to compensate for the sharp rises that have occurred since last year.

The official rate for this festive bridge and on Tuesday of the following week is 4,177.58 pesos, but there are those who anticipate that as the semester progresses, the dollar will strengthen again.

Luis Fernando Mejía, director of Fedesarrollo, sees an exchange rate of around 4,225 pesos at the end of 2023, other less optimistic analysts believe that it will end at 4,600 pesos or even very close to 4,800 pesos.

ECONOMY AND BUSINESS