Norbey Lombana owns the El Puente workshop, in Guaduas, Cundinamarca. Érika Salgado is a manager at the Alitaz restaurant in Calarcá, Quindío, and Jorge Pérez is a small food manufacturer in Bogotá. No one knows the other, but all three complain about the same thing: the bad behavior of their respective business so far this year.
Similar testimonials are the norm today in a good number of companies from the most diverse sectors and sizes. According to the Joint Industrial Opinion Survey prepared by Andi together with other unions, and whose report with data up to April would be released this Tuesday, the evolution is not good.
The results in the first four months of 2023 «record a behavior with slower pace of economic activity in terms of production and sales, a level of utilization of the installed capacity lower than the historical average, a greater accumulation of inventories, a lower volume of orders and a moderate situation of the company”, the report maintains. And he adds: «All of this configures a context with a reduction in demand.»
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For its part, the Dane said Tuesday that the Economic Monitoring Indicator, which is prepared every month, showed a decrease of 0.8 percent in April. It is the first time in a couple of years – when the rebound after the paralysis of the pandemic began – that the figure is negative.
Although the affected segments are multiple, there are two key areas that show the magnitude of the slowdown. At the close of the fourth month of 2023, trade showed a contraction of 6.9 percent, which exceeded the calculations of the specialists. Of the 19 activities tracked by the Dane, 11 numbers are shown in red, with a particularly significant drop in the field of vehicles with two or more wheels.
At the close of the fourth month of 2023, trade showed a contraction of 6.9 percent, which exceeded the calculations of the specialists.
It is true that in certain categories the drop is worldwide. For example, computer equipment or televisions reach double-digit drops in markets on five continents, as a result of the reopening after the health emergency that made it more attractive to go out into the street and made it possible to return to the offices. In any case, at a national level, this setback is somewhat more noticeable. Put another way, here the break turned out to be harder.
Even more significant was the setback in manufacturing, since 80 percent of the subsectors examined —31 out of a total of 39— reversed course in the same period, ranging from textiles to oils, including wooden goods or chemical products. . The accumulated annual drop reached 6.4 percent, the strongest since August 2020.
Few companies boast these days of meeting income and profit budgets. But the underlying question is whether the current slump is temporary or aims to last over time, something regarding which there are conflicting opinions and which is conditioned by a series of unknowns.
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Within schedule?
Having raised the question, it is worth noting that those who are dedicated to predicting the behavior of the economy have been talking for a long time about a slowdown. After a couple of very vigorous years, in which the country was the most dynamic in Latin America —at least in the group of nations with the largest relative size—, a loss of speed was to be expected.
In fact, the projections, after the expansion of more than 7 percent in 2022, spoke of a figure close to one percent for 2023. For this reason, analysts were positively surprised when the data related to the increase in gross domestic product in the first quarter showed an increase of 3 percent. However, a closer look shows a gradual loss of pace that would reach its most extreme point in the second quarter. In part, there is what is known as a base effect since a notorious boom took place twelve months ago, but in general the current environment is more hostile.
In addition, the initial balance of the year turned on additional warning lights. To be precise, what in the national accounts kept by the Dane is known as gross fixed capital formation —which reflects the behavior of productive investment— had a very bad performance, showing a reduction of one percent.
And with regard to machinery and equipment, the drop reached 8 percent, something that raises doubts about the future. Hence The adjective ‘worrying’ appeared frequently in the conversations, since the unknowns about what is to come far outweigh the certainties.
Both external and internal factors explain this qualifier. On the international front, higher interest rates in response to a rebound in inflation began to hit the pace of global consumption and trade. While a recession scenario seems less likely now, economic pressures are compounded by geopolitical ones, including the war in Ukraine or tensions between Washington and Beijing.
Higher interest rates in response to a rebound in inflation began to hit the pace of global consumption and trade.
For its part, at the local level there is also a policy aimed at putting the increase in the family basket at a waist. As is known, the Banco de la República has raised its interest rate to 13.25 percent per year, which has made the various credit segments more expensive and makes borrowing less attractive, whether it is to buy, go on a trip or acquire an apartment. .
Added to the above is the uncertainty derived from the Government’s announcements. The discussion of the reforms related to health, pensions or labor regulations —apart from the pronouncements on mining and hydrocarbons— causes many businessmen to open a waiting compass before making long-term decisions.
Likewise, the fall in the purchasing power of families and the doubts about what has been influencing household expenses. Surveys show an increase in pessimism caused not only by economic reality, but also by the perception of corruption or insecurity.
Neither can the effect of the tax reform at the end of last year that raises the taxes on companies and employees with incomes of more than ten million pesos per month be ignored. Paying higher taxes to the treasury has an initial contractive effect that would eventually be offset depending on where the government money goes.
Be that as it may, all of this has led to weaker demand, which in recent weeks has been seen to be even more fragile. In the opinion of José Ignacio López, director of Economic Research at Corficolombiana, «the adjustment is here.»
The consumption rate is expected to improve and production to have a new dynamic.
Jaiver Nieto Alvarez/ETCE
For the specialist, the downturn is more notorious due to the reduced appetite for durable goods, «to which was added the unfortunate impasse of the Mi Casa program subsidies, which hit home sales.» The difficulties that construction activity is going through, those linkages with segments of production and employment are important, make reality even more challenging.
The large surfaces affirm that the categories that maintain their sales are the essential ones: food, personal hygiene or cleaning articles, with a predilection for white brands. At a general level, what is traded are less volumes, a lower average bill and a higher frequency of visits to the establishment. As summarized by Camilo Herrera, from the firm Raddar, «today the budget factor outweighs the price factor.»
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what may come
Having made this verification, the expectation persists that in the coming semester there will be a gradual improvement. According to Mauricio Reina, a researcher at Fedesarrollo, there are reasons to think of a more favorable environment. “If inflation drops, the dollar remains close to its current levels and the Banco de la República begins to reduce its interest rate, there would be room for a somewhat more expansive policy,” he stresses.
It highlights, in any case, that there are unresolved questions. A climate of polarization and political tension can influence consumer sentiment. Likewise, it remains to be seen whether public spending ends up being an acceleration factor, since for now there is a noticeable lag in the budget execution indices, which in turn is felt in the behavior of aggregate demand.
After a couple of years of great vigour, in which the country was the most dynamic in Latin America
– at least in the relatively larger group of nations – a loss of speed was to be expected.
«If in the second part of the year households managed to recompose their spending and get out of some debts, suddenly at the end of the current calendar there will be a boost that moderates the drop that we have observed, but that arose from multiple factors,» he adds. Lopez. Even the evolution of the climate, after declaring the El Niño climatic phenomenon, will end up intervening in the classification. Herrera drew some favorable light in May, but affirms that it is still early to jump to conclusions.
At the same time, merchants expect that the drop in global inflation and the exchange rate will lead to lower prices for some items. To cite one case, promotions are beginning to appear in the line of televisions that can lead many to make a deferred purchase.
However, along with the hope that the environment will be more propitious is the call to the authorities to do what corresponds to them. This begins with the effectiveness of a government that is more focused on announcements than on executions or on antagonizing productive sectors instead of seeking consensus.
And here everyone does their accounts. While an important businessman —who prefers to remain anonymous— maintains that many of his peers have revived projects with the conviction that in a few years there will be a less hostile leader towards profit and private activity, others remain concerned about signs such as reintroducing the labor reform in the next legislature, considering it a fundamental tool of the class struggle.
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A businessman maintains that many of his peers have revived projects with the conviction that in a few years there will be a less hostile leader towards profit.
This is not to mention alerts of a more general nature. As time goes by, doubts regarding the investment climate continue, in the midst of a complex environment. The Joint Industry Opinion Survey shows that the volume of industries describing their orders as high or normal fell by 14 percentage points in the April measurement.while those talking about high inventories saw a 21 percentage point rise, to more than a third of the sample.
Faced with this mixture of messages of a contradictory order, the usual practice would consist of waiting for messages of calm from senior officials, together with one or another punctual encouragement. But on this occasion that does not seem to be the case since the pronouncements on more than one occasion are antagonistic.
Due, both consumers and businessmen will continue swimming between two waters. In the best of cases, the slowdown will be less strong, but in any case there will be a slowdown that will end up weighing on the employment and poverty figures, with mediocre growth figures. At worst, the final part of 2023 will not bring the relief that so many crave.
None of these musings crosses the mind of Norbey Lombana, who simply wants more tractor-trailers to use their services. “People say that they have to take care of their money and postpone repairs,” he affirms, while he looks closely at the line of trucks that passes in front of his business and notes that the vast majority continue on.
RICARDO AVILA
Special for THE TIME