When people feel poor, they blame their President

COLOMBIA - Report 28 Apr 2023 by Juan Carlos Echeverry and Andres Escobar

The results of Dane’s 2022 Quality of Life Survey on perceived poverty should worry the government. Perceived poverty jumped from 37.9% in 2019 to a startling 46.7% in 2021, and then rose, yet again, to 50.6% in 2022. This last 4 pp increase leaves no doubt about families’ perception that inflation beat growth last year. Both in the main urban centers and in the rest of the country, perceived poverty rates are at their highest in a decade. At the end of 2022, 46.7% of families in large urban centers thought they lived in poverty, and in the rest of the country, a staggering 74.1% thought they did.

Waning confidence and increasing hardship have decreased willingness to spend. After six consecutive quarters of decreasing private savings relative to GDP, caused initially by the pandemic and then by strong credit amid noticeable economic momentum, Q4 2022 finally witnessed a recovery in private saving (investment also rose relative to GDP, but that recovery took place among firms). As households (and businesses) increased saving, the result was, of course, lower spending. No wonder the economy started slowing in Q4.

As households’ disposition to spend wanes, exacerbated by higher real interest rates, lending has clearly suffered. Lenders are also putting the brakes on credit to households because delinquency rates for consumer credit are mounting. Economic activity is losing momentum fast (the surprising jump in economic activity reported in January was short-lived).

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