A note on the spike in the recent GDP data: it hides a dismal recovery
The 40.4 percent growth in Q2 (10.0 percent in the first semester) may not be enough to achieve the double-digit performance for the year that some analysts predict. The rebound will face a labor market characterized by increasing unemployment and informality. Only a handful of sectors will reach pre-pandemic levels. In political news, the Social Security pension reforms will soon move from the national dialogue to the Legislative Assembly, where politics will prevail.
Most of the monthly indicators that INEC publishes showed increases during the first six or seven months of 2021 with respect to the same period of 2020, but only a handful are now at the same level or above the pre-pandemic period. Of those that registered growth, some did so at a rate lower than the economy as a whole: canal transits, energy consumption, beef, poultry, and hog production. Tourism (visitors, restaurants, and hotel rooms) is still in recession. In general, local service activity will likely increase in the last quarter, thanks to the vaccination coverage (eighty percent of the population with two doses before the end of the year) and the re-opening of the economy since the end of September.
The rebound of economic activity will not cause significant job creation during the rest of the year. The pandemic destroyed 289,000 jobs in 2020, or 15% of the labor force, despite an increase in the government payroll, as the private sector lost 37% of its formal positions. In "normal" periods, the economy would generate around 45,000 new jobs per annum; therefore, it would take more than six years for the market to recover at the current pace. As we will show here, the sectors that are growing the most in 2021 are those with low participation in the nation's value-added and a low demand for labor, The key to understanding the labor situation is the nature of the informal market.
Every time new official information about the status of the financial reserves of the Solidarity Pension System is published, the political economy of the issue takes precedence. Numbers are more worrisome anytime new information becomes available: the reserves of the defined benefits sub-program (solidarity system) were US$ 1,230 million at the end of 2020, 16% lower than in December 2019 (we have no data for 2021). The labor market and the economic disaster of 2020 explain some of the downfall. At the current pace, by the end of 2024 reserves will be depleted. The reduction of reserves is around US$ 410 million per year, complicated by the fact that the slight increase in activity over the next few years does not imply new job creation (as discussed before).
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