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IMF forecasts an improvement in the global economy, but pessimism grows in Colombia – Sectors – Economy

Poradmin

Feb 5, 2023

While the International Monetary Fund (IMF) begins to see that the threat of recession is diminishing in some countries and increases its economic growth forecasts for 2023, the opposite is happening in Colombia and it is more pessimistic compared to what it expected in October from last year.

«Adverse risks have moderated since October and some positive factors have gained relevance», highlighted the IMF in its updated estimates of the world economy published on January 30. However, it also said that the risks to the outlook remain tilted to the downside.

(Also read: IMF: Colombia, Haiti and Chile will have the lowest performances in 2023)

With the world experiencing the aftermath of Russia’s invasion of Ukraine—next to its one-year anniversary—recessions and the efforts to curb inflation Through the increase in credit, the IMF expects the world economy to expand 2.9 percent this year, 0.2 percentage points more than it had predicted in October (2.7 percent).

According to the IMF, the slowdown is less pronounced than might be expected in several developed economies, such as the United States (growth is estimated at 1.4 percent in 2023, before it was 1.0 percent), Germany, or Italy.

Economic growth appeared surprisingly resilient in the third quarter of last year

These two European economies would even see the prospect of a recession recede. «We are a long way from any kind of marker of world recession«, said the chief economist of the IMF, Pierre-Olivier Gourinchas, as reported by the AFP Agency.

It is good news that is attributed, mainly, to the reopening of china after the lifting of the ‘zero covid’ policy a few weeks ago, although greater consumption and investment also weigh on it. The Asian giant will grow 5.2 percent compared to the 4.4 percent forecast three months ago, and will drag the global economy.

Inflation also seems to be falling compared to 2022. The IMF forecasts 6.6 percent this year, slightly higher than the 6.5 percent forecast last October, but in 2024 it should return to below-expected levels. 2021 (4.3 percent vs. 4.7 percent previously).

(Also read: Annual inflation in Colombia does not let up and reached 13.25% in January)

The three global locomotives—the United States, China, and Europe—resist, albeit for different reasons, with all developed economies expected to follow suit. But there is an exception: the United Kingdom, the only country in the G20 that will experience a recession, of the order of 0.6 percent.

Russia, by contrast, could emerge from recession despite sanctions imposed since it invaded Ukraine on February 24, 2022. Its economy will expand slightly in 2023 (0.3 percent) and considerably more in 2024 (2. 1 percent).

Despite the fact that many economies will grow less this year than other years, some have shown surprising resilience. «The forecast for low growth in 2023 reflects the increase in rates of central banks to combat inflationespecially in advanced economies, as well as (the effect of) the war in Ukraine,» the IMF explains.

But «economic growth emerged surprisingly resilient in the third quarter of last year, with strong labor markets, strong domestic consumption and also business investment,» Gourinchas stressed.

In addition, he said that the countries adapted better than expected to the energy crisis in Europe, with gas prices lower than anticipated and enough resources for the boreal winter.

Panorama in Latin America

The IMF estimates that Latin America and the Caribbean will grow 1.8 percent this year, less than globally, but 0.1 percentage points more than anticipated in October. Furthermore, he says that 2023 is likely to be a difficult year for the region.

«Both the employment creation as consumer spending on goods and services is slowing and consumer and business confidence are weakening. Growth will also be constrained by a slowdown in trading partners, particularly the United States and the euro area,” she stated.

The two regional economic locomotives, Brazil and Mexico, will grow 1.2 percent (+0.2 percentage points) and 1.7 percent (+0.5 percentage points), respectively. Chile would be the only economy that would contract with 1.5 percent.

Despite the obvious difficulties, the IMF says that policies must work to achieve economic stability, stimulate growth and job creation, encourage entrepreneurship and address the pressing social needs faced by many people in the region. «This will help alleviate social unrest and restore confidence in public institutions,” he added.

(Also read: Reasons why inflation continues unstoppable, despite Petro shock measures)

And Colombia?

The IMF expects the Colombian economy to grow 1.1 percent in 2023, half the forecast it launched three months ago. But the recovery would come next year with a Gross Domestic Product (GDP) growing 2.1 percent.

The general manager of Banco de la República, Leonardo Villar, has mentioned that this slowdown that is observed is due to the fact that the point of comparison —which is 2022— is very high. The Issuer expects GDP to close at 8 percent.

Luis Fernando Mejía, director of Fedesarrollo, shares this same point of view. Previously, the fund estimated that Colombia would have grown 7.6 percent last year and now his estimate has risen to 8.1 percent. «This implies a higher base effect in the comparison of economic growth between 2023 and 2022 and this implies a reduction in the forecast for this year,» he explains.

The current IMF forecast is much more in line with the 1 percent of Andi and the 1.5 percent expected by the market and Fedesarrollo. But the Bank of the Republic is more pessimistic. The technical team now forecasts growth of 0.2 percent (previously it was 5 percent) due to the expected decrease in consumption and investment in the country.

The pronounced deceleration foreseen for this year also responds to the increases that the Issuer’s interest rate has had in recent months and that currently situates it at 12.75 percent, which is added to the need for Colombia to close its current account deficit which is still very high.

In order to achieve a higher GDP and avoid a recession, Alberto Bernal, director of Global Strategy at XP Investments, believes that it is essential to restore confidence and that the cabinet of President Gustavo Petro join the «responsible discourse» of the Minister of Finance , Jose Antonio Ocampo and move away from the «anti-growth talk» of the Ministries of Labor and of Mines and Energy.

Likewise, it is key to reduce the uncertainty that exists about the changes that the Government wants to make to the pension system.

«Investors are very concerned about the eventuality that President Petro’s government takes decisions that go against the capital markets. The pension reform is perhaps the most important of all. A reform like the one they want to pass now would be terribly bad for the Colombian macroeconomy,” warns Bernal.

ECONOMY AND BUSINESS