Credit, employment and expectations
The economy seems on track to meet 2019’s 3.3% consensus growth target, and expectations for this year point to something slightly better. Yet averages could mask important differences.
Our analysis suggests a credit slowdown is about to begin, which means 2020 could be the peak growth year for this business cycle. As this new phase kicks in, it will become harder for consumers to keep spending in excess of income growth, thereby bringing household consumption dynamics more in line with GDP growth. That doesn’t mean, though, the credit cycle will come to a grinding halt.
2019 ended with an unemployment rate of 9.5%, which maintains the downward behavior seen since September. More importantly, unemployment in December 2019 was lower than in December 2018 – which allows us to finally start talking of a real job market recovery. But the lack of job creation is not making things easier.
Though the worst of the “crisis” seems to be over, we mustn’t let our guard down. Colombia’s unemployment rate is structurally higher than that of its peers. The roots of this phenomenon are well known: a relatively high minimum wage that does not match productivity dynamics, and additional payroll taxes and costs that prevent Colombian firms from creating jobs. Once these considerations are adequately addressed, will can talk about real labor market recovery.
Colombia could be dubbed “the land of pessimism,” because most small talk dwells on reasons to hold a somber view of reality. It is hard to find anyone who speaks well of President Iván Duque, and many key features of daily life remain intractable: cocaine trafficking, the assassination of social leaders, smuggling and crime, and the dictatorship of Venezuelan President Nicolás Madero.
But we think Colombians may be starting to feel more optimistic about their present, and foreseeable future. Households, firm owners and administrators all seem to be giving Duque and the economy the benefit of the doubt. Some in Colombia say that 2020 started with bravado: that sales started on a good footing, and that fears of Chilean protest contagion have receded. If this new-year sentiment persists and the political landscape changes for the better, our base-case growth scenario might become more optimistic.
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