Savings, investment and politics
Two years into the COVID pandemic, the Colombian economy has experienced roller-coaster swings the likes of which it has never witnessed before. The dramatic downturn of 2020, followed by a remarkable rebound in 2021, is already a well-known fact; we are also well aware of the stark deterioration of the current account deficit, which reached almost 7% of GDP in Q4 2021. That means that, in 2020 and especially in 2021, investment far outpaced savings.
When the pandemic exploded in 2020, the reduction in savings relative to GDP gained momentum, while investment fell by almost 4 ppts of GDP. Then, in 2021, investment rebounded, bolstering recovery, while savings continued to fall even further. Household savings were hit by a combination of investment patterns and consumption decisions. Households’ disposable income had been losing steam during the latter part of 2019, but as the pandemic progressed, lockdowns were enforced and the government launched its subsidy programs, disposable income rose (relative to GDP, not in absolute terms).
The economy needed to spend its way out of the pandemic, which means savings had to suffer too. In this report, we address who did what during this process. The bottom line is that Colombian households are consuming much more (relative to GDP) than prior to the pandemic, while their disposable income suffered tremendously last year. So households stopped being suppliers of savings to the rest of the economy, adding to the pressures exerted by the expansionary fiscal policy. This cannot go on indefinitely.
Of course, the economic effects of COVID haven’t stopped just because cases have dropped, the economy rebounded, and people have regained much of their mobility. The scars left by COVID will stay with us for awhile longer -- maybe a lot longer. And strong inflation will just make everything much more difficult.
Even as Election Day approaches, we think that Colombians will keep us perched at the edge of our seats, biting our nails, and guessing who will prevail in June. We still give a Petro win a 40% probability, a Fico win 50%, and a Fajardo win a 10% chance.
There have been mixed signals from Colombia’s oil & gas community about how the plunge in production since 2019 should be interpreted. But oil might still be the main source of Colombian exports for the rest of this decade.
Now read on...
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