Recession alerts rise

Recession alerts rise
Recession alerts rise

One day before the United States Government announced inflation for March, which reached 8.5 percent annually, the highest since December 1981, several analysts were already envisioning the dramatic scenario that was to come.

Michael Hartnett, head of investment strategy at Bank of America, warned that “The inflation shock is getting worse, the rate shock is just beginning, and a recessionary shock is looming.” According to CNN, the executive ruled that inflation is “out of control” and “causes recessions.”

It was not the only notice. Nathan Sheets, chief global economist at Citigroup Inc. and a former US Treasury and Fed official, told a Bloomberg program thatThat a “very serious” geopolitical and energy situation, coupled with the Federal Reserve’s plan to raise interest rates, would make the odds of a recession “significant” in the next year and a half. His calculations establish a one in three chance of a global recession and a one in four chance for the United States.

Precisely, the increase in rates by the United States Federal Reserve, which is setting the tone in the world, could be more aggressive. St. Louis Fed President James Bullard has proposed raising the interest rate by 75 basis points next month to 3.5 percent. Although the markets are preparing for the Fed to follow the path of increasing interest rates at a higher speed and thus stop prices, the risk is that it overreacts and puts the economy in check. In this scenario, the World Bank assures that global growth will be reduced by almost one percentage point (to 3.2 percent this year) due to the conflict between Russia and Ukraine, in addition to a slowdown in China as a result of the drastic restrictions and isolations to control new outbreaks of covid, which makes it difficult to achieve 5.5 percent growth this year for the Asian giant.

And Colombia?

Although in the world the expectation of recession is maintained, in Colombia the dynamics of the economy is on a good path. In February, according to the economic monitoring index (ISE), it registered a growth of 8.1 percent compared to the same month of 2021, when it decreased 3.2 percent annually.

And this dynamic is recognized by international entities. While the World Bank assured that Latin America will grow 2.3 percent this year, The entity considers that Colombia will register a growth of 4.44 percent. In turn, the International Monetary Fund (IMF) projected that the Colombian economy will have an increase of more than 5.8 percent in 2022.

The country comes with a tailwind. “Colombia’s economic recovery in 2021 was one of the most dynamic in the region and is expected to maintain its momentum in 2022, driven by strong household consumption and the continued recovery of investment and exports,” the IMF warned. . According to an analysis by BBVA Research, the Colombian economy will withstand the shock caused by the conflict. Although the confrontation will have negative effects on both growth and global inflation, in the country the higher prices of raw materials will boost the mining-oil sectors, associated activities, such as transportation, energy production and refining, and other non-tradable branches of the economy, especially construction. In addition, Rising oil prices, as well as the collection for a more dynamic economic activity, will improve the fiscal closure and Colombia’s external accounts.

Despite this good outlook, the country faces several challenges. Inflation, as in the rest of the world, continues to run rampant. To this is added the increase in interest rates, which will slow down consumption and could make structured investment projects unviable in the midst of a more stable macroeconomy. In the short term, Colombia has room for maneuver, but it will have to be ensured so as not to see a lag next year. However, the biggest challenge is the electoral uncertainty of a tense and polarized process for the presidency of the republic.

The article is in Spanish

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