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Economic growth: Long-term recovery?

The latest National Administrative Department of Statistics (DANE, for its Spanish acronym) report on economic growth for the first quarter of 2018 shows a growth of the economy of 2.2 % and in general shows an empowered financial sector and other key sectors stagnant. It is also worth mentioning that this data comes from using a new methodology.

In the new calculations, the base year is now 2015 and new sectors were included, such as artistic, entertainment and recreational activities, passing from 9 to 12 sectors analyzed. In this new basket, along with diminishing information, delivery times correspond to standardization topics within the United Nations statistical system. Using the new technology and a new basket requires a new study period and adaptation to the new calculation method; therefore the figures should be looked at cautiously. However, DANE has adjusted the series since 2005 to the new methodology in order to perform a better analysis of the data.

If the 2.2% of the first quarter of 2018 is compared to the 1.3% (adjusted) of the first quarter of 2017, the figure is encouraging and in general, market analysts agree that it is the start of a recovery stage for the Colombian economy. However, it is a figure which still is far from the optimistic forecasts of multilateral agencies which at the beginning of the year predicted a 2.8% growth. In fact, the figure was readjusted low to 2.5 %.

Beyond the generalized voices of recovery, it is good to consider that some of the sectors that continue to grow and pulling the economy are the one less intensive in employment and which have a greater degree of concentration. As the case of the financial sector which grew 6.1%, despite the growing figures of past due loans in 2017 has been benefitted in this new cycle with lower interest rates, clearly favoring its profit margins.

Down the list, follows sectors which traditionally were not included in the GDP basket such as:

  • Public administration and defense, which grew 5.9 %.
  • Professional, scientific and technical activities, which grew 5.6 %.
  • Artistic, entertaining and recreational activities which grew 4.0 %.

The growth level for these three sectors –which according to the new methodology are considered independently– is not surprising, as despite the post-conflict the military spending for public administration and defense has not been reassigned and continues to be high.

In regards to the professional, scientific and technical activities, the level of growth is more a nominal standard tag as the scientific contributions to the GDP are practically null and allotments to R&D are meager at best. Therefore in this category, they only add to the professional and technical activities whose behavior should be analyzed in detail with the evolution of future measurements.

With respect to the artistic and entertainment sector, this has become strong in a globalized world, especially when the country receives world-class entertainment shows. Unfortunately, only part of the employment created is temporary.

Sectors such as agriculture, which in the first quarter of 2017 grew at rates above 7%, after the crisis of 2016, they begin to return to normality. Despite that, this was a sector which grew at a rate of 2%, it is having a below-average performance, which is concerning as it is a key sector for the post-conflict.

Figures in red 

The mining-energy locomotive of the Santos administrations has not taken off yet and had a negative variation of 3.6%. Despite an important increase in the price of oil of late, the sector continues to decrease and was impacted by the shutting down of the Caño Limón pipeline during the first months of the year.

Now it’s customary to see the manufacturing industry in red and the first quarter of the year was no exception, it fell 1.2%. It is the consequence of governments not placing much attention to the industry, professing the idea of “the best policy is one that does nothing” and showing the failure of free-market ideas.

The biggest surprise is the alarming figures of the construction sector with a fall of 8.2%, particularly in residential housing and non-residential construction, with a negative 9.2%. For some experts of the sector, the uncertainness of the electoral season impacts the buying decisions for families as well as investment decisions. This is contradictory as the policy of lower interest rates does not seem to continue impacting the real estate market and the phantom of the real estate bubble continues to lurk in some circles.

This sector has also been affected by public works, the delay in 4G freeways, as well as the technical failures and rampant corruption.

In summary, it is clear that the data shows a clear turnaround, but the sector which creates jobs and dynamism still does not take-off. What the GDP shows is that the economy works for the financial sector and not the opposite, how it should be in a more balanced economy model where finances work for the economy.

 

Consejo Editorial