how the Colombian economy will behave in 2022 – sectors – economy

Home »News» how the Colombian economy will behave in 2022 – Sectors – Economy January 9, 2022

Not to mention that these are not phenomena exclusive to Colombia, since inflation and the dollar are a cause for concern in many countries, the truth is that 2022 has started with many people complaining about the price of life, especially food. For example, potatoes cost more than twice as much as a year ago. Several factors are affecting this situation: reactivation, crisis in supply chains, uncertainty due to the pandemic and even political aspects, like who will be the next president of the country.

(You can also read: Why Was Inflation In 2021 The Highest In The Past Five Years?)

The cost of living and the dollar price ended the 2021 surge. The first of those indicators closed at levels of 5.62%, according to Dane, while the second was around 4,000 pesos.

What economists and businessmen predict is that the start of 2022 will not be easy on these two fronts, since they estimate that in inflationary terms Colombia could even approach 7%, while on the foreign exchange front it would not be surprising that the cost of the dollar will appear at 4,400 pesos or more, at least, in the first quarter.

It is still the effects of the pandemic, say some analysts consulted, who also consider that in the coming year other factors will be added that will put more pressure on these indicators and others.

One of the main ones is that we are entering an election year, in which many issues fundamental to the future of the country will depend, to a large extent, on the results on this front.

One of the main ones is that we are entering an election year, in which many issues fundamental to the future of the country will depend, to a large extent, on the results on this front.

This week Bloomberg reported to the world the following: “The Colombian peso started the new year by hitting a post-pandemic low. It may be a sign of things to come ahead of the May 29 presidential election. As the currency is undervalued on the basis of fundamental factors, presidential and legislative elections are likely to fuel tensions and “moderate a return to fair value,” wrote Kathryn Rooney. Vera, head of research and strategy at Miami-based Bulltick LLC ”.

“The peso,” Bloomberg continues, “fell nearly 16% in 2021, despite an increase of more than 50% in the price of oil. This weakness has become familiar throughout the Andean region over the past year: Currencies crumble as left-wing candidates rise in the polls and ultimately win elections, scaring investors accustomed to decades of pro-market policies. . Not even higher commodity prices or interest rate hikes could save the Chilean peso and Peruvian sol last year. It is also not very likely that these factors will come to the rescue of the Colombian peso in 2022 ”.

At the same time, there is a global logistics crisis that has not been resolved. And in the opinion of Bruce Mac Master, president of the National Association of Businessmen of Colombia (Andi), it will take all this year to try to reach the levels before the pandemic. “The reason for the high inflation is the global impact that the high cost of logistics has had, derived from the measures adopted to contain the pandemic, which have led to the closure of a large part of the borders”, explains Mac Master.

To this situation which has hit all the economies of the planet, pushing up the costs of raw materials, other negative factors are added in Colombia such as the national strike (April-May), which has impacted supply chains, and increased household demand. , which spiked food inflation by over 17% last year.

It wasn’t the only thing. Another aspect that has contributed to the increase in inflation to levels of 5.62 percent has been the rise in regulated prices (energy, electricity, gas, water and gasoline), which, along with food, account for 70%. percent of total variation.

There is also the higher household consumption and the effect of the depreciation of the peso against the dollar, which reached almost 16%, which made all imported products more expensive, especially raw materials, many of which are fundamental in food production. for human and animal consumption in the country.

Raw materials such as yellow corn, key to the production of concentrates; Wheat; barley and hops, for making beer, and grains such as beans, lentils and chickpeas had to be imported at higher prices, businessmen say.

(Also, read: With inflation, how much purchasing power actually increases from the minimum in 2022)

Global success

But Colombia is not the only country to have felt the effects of this situation. Although a 5.62% annual change in inflation has not been observed for five years, it is not among the highest in the world.

Although an annual change of 5.62% in inflation has not been observed for five years, it is not among the highest in the world

Turkey, with 36.1% last year, occupies this position among the economies for which such data is already known, according to the Organization for Economic Co-operation and Development (OECD). The other countries with higher inflation than Colombia are Spain, which closed last year with 6.7%; Peru, with 6.4 percent, and Belgium, with 5.7 percent. And there are others that, until November of last year, brought higher inflation than Colombia for the same date, such as Argentina, Brazil and Russia, with 51.2 ; 10.7 and 8.4 percent per year, in your order.
The United States is also in this group, which reported 6.8 percent; Mexico, with 7.4 percent, and Chile, with 6.7 percent.

What is coming

The pressures induced by inflation, added to those of the year which has just started, such as the increase in certain prices indexed to inflation and the minimum wage, which this year has been adjusted by 10.07%, as well as An exchange rate that threatens to reach 4,400 pesos driven by the electoral stakes on the first part of the year, suggest that the variation of the consumer price index will exceed 6% in the first quarter of 2022.

Camilo Durán, Senior Analyst at Crédicorp Capital, considers that this situation could push inflation to levels close to 7% between April and March, but once these supply shocks are corrected, it would start to fall to 3.7% or more at the end of the year, but much will depend on the peak reached in the first trimester.

For Grupo Bancolombia analysts, given the current context and the fact that the end of 2021 is a reference in the adjustment of the various rates for this year, in 2022 inflation could end at 4.5% and in the short term exceed the 6%.

Luis Fernando Mejía, director of Fedesarrollo, warns that it should not be ignored that the increase in the minimum wage will also be a pressure factor on inflation in the first quarter of the year, as well as the rebound in the exchange rate ( today above 4,040 pesos), because there is a good proportion of goods that are imported and this puts additional pressure on this first quarter.

And analysts don’t see a cheap dollar at the start of the year, largely because of the electoral issue, for this reason they think the exchange rate could easily hit the 4,400 peso range and beyond- beyond, depending on the results both in the primary and in the presidential elections.

Felipe Campos, director of research and strategy at Grupo Alianza, points out that they see two economic forces in this semester: the direction of the dollar in the world and the Colombian electoral cycle.

According to him, the former could help the peso if global inflation moderates and the dollar index falls, but he warns that in a pre-election cycle, the international question could take second place.

For the analyst, the congressional elections of March 13 will be decisive in the direction of the currency. “The problem is that in similar countries like Chile we have seen a Congress divided 50-50, so if in Colombia proportions of 70-30 or 60-40 between right / center and left (today 86-14 percent in the Senate and 91 -9 percent in the House), then the fear of strong changes in the economy would be reduced ”.

However, he notes that the results of the presidential elections will be currency decisive and will ensure that the exchange rate can stay at the stress levels of the first half of the year (between 4,300 and 4,500 pesos) or fall to 3,800 pesos or less, according to the winners of the competition.

A larger tariff adjustment, one of the answers

With blazing and booming inflation, expect the Banco de la República board to speed up the adjustment of its market intervention rate at its January and March meetings.

Jackeline Piraján, economist at Scotiabank Colpatria, estimates each adjustment at 0.75 basis points, bringing the resource cost for the roof rack to 4.5%, from the current 3%.

On a recent occasion, Leonardo Villar, manager of the Issuer, stressed that in order to return to normal price behavior, great confidence is required that the entity will do what is necessary to ensure that this is the case.

“The Bank cannot indefinitely continue to provide liquidity at the rate it has been doing, and at rates as extraordinarily low as it did during the worst period of the crisis,” said the manager.

(You can also read: Inflation in Colombia in 2021 is not one of the highest in the world)

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