The alarms are on due to the slowdown in the United States economy, which could lead the main world power to enter a recession next year, an idea that is gaining more and more strength among the projections of the experts, and that, without a doubt, would end up touching Colombia.
The recession in the North American country, Colombia’s main trading partner, has not yet been consolidated, but the scenario of a generalized loss of economic activity cannot be ruled out, since there are already signs that indicate this, such as the high levels of the cost of living and consequently the increase in interest rates to levels not seen for 20 years. Added to this are the effects of the war between Russia and Ukraine, which also have the world economy in check, due to the decrease in oil supply.
“There is talk of a recession in the United States because it will meet the most basic definition of growing two negative quarters in a row, under a very strict definition of them,” explains economist Felipe Campos, Manager of Investment and Research at Alianza Valores y Fiduciaria. .
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In this sense, if the uncertainty of a recession in the United States becomes a reality next year, as experts warn, the Colombian economy, which until this year showed that it was consolidating its recovery after the crisis due to the pandemic, could have important consequences. although not immediate, according to specialists.
Exports
The impacts in Colombia are explained, in a simple way, because everything that the country buys and sells to the world is done in dollars and if the United States enters into a loss of economic activity, Colombia would lose the capacity to sell (export) and that in turn, it would limit the capacity of what can be bought abroad (imported). In other words, the first impact is that the value of Colombian exports may fall.
It should be noted that the interconnection of production systems means that a large part of the things that Colombian consumers buy have an imported component and, if we are restricted in terms of imports, the capacity to produce everything that is exported would also be lost.
“The main product that the United States buys from us is oil. And we have already seen that only with the threat of the expectation of a recession, the first thing we experienced was that the price of oil fell sharply”, says Munir Jalil, chief economist for the Andean Region of BTG Pactual.
The fear that the price of oil will fall is due, among other things, to the fact that in Colombia this hydrocarbon represents close to 40% of foreign direct investment in the country and more than 40% of the generation of foreign currency, according to what was pointed out this week by the President Iván Duque, in the midst of his defense of the hydrocarbon sector, on which he depends to a great extent.
Foreign investment and remittances
On the other hand, if Colombia’s main trading partner weakens economically, foreign investors would also stop investing in our country, due to the risk that an imminent slowdown in the Colombian economy would represent for them.
“The risk appetite of portfolio investors can also be affected. Talking about a recession internationally can affect the arrival of dollars to the Colombian economy and that affects both imports and domestic demand, and can slow down the good moment that the national economy is having,” says Sergio Olarte, economist at Scotiabank Colpatria.
Another of the effects that would be seen in Colombia, due to its economic dependence on the United States, would be the significant loss of remittances, since the United States, in addition to being Colombia’s main trading partner, is the place where Colombia receives the largest amount of remittances. dollars sent by Colombians who work there.
According to the professor of economic and administrative sciences at the Javeriana University, Guillermo Sinisterra, Colombia had 8.5 billion dollars in remittances last year and a similar amount is expected this year.
When would the impact be felt?
According to experts, due to the fear of a recession, it is possible that in this second half of the year there will be impacts, especially in the dollar and oil, as was already observed this week, when for the first time in history the North American currency reached 4,420 pesos.
“This second semester could be a very volatile semester for financial assets,” warns Felipe Campos.
But if the recession in the United States is finally confirmed, the impact on Colombia would be somewhat delayed and the nation could sharply slow down its economic activity in the coming quarters. That is, the economic event would be noticed next year.
This is also the view of Guillermo Sinisterra, who says Colombia is always slow to be affected when there is an international crisis, which is not necessarily a good sign. “That happens because basically we are more of a closed economy than an open one,” he says.
“Colombia is always caught by recessions a few good months apart. Of course, we are going to have an increase in interest rates, of course we are going to have a slowdown in economic activity, but we are not going to fall into a recession until a later point”, adds the expert, assuming the most difficult scenarios.