It’s time to (cautiously) reopen
The unprecedented 15.7% contraction in Q2 was hardly a surprise. But there is uncertainty over the distribution of “pain” across sectors and aggregate demand, and the depth of the collapse. Almost all sectors were hard hit. But agriculture, financial and insurance activities, and real estate activities were exceptions, growing 0.1%, 1% and 2%. On the demand side, only government consumption grew (3%), while household consumption fell by almost 16%, signaling that government spending simply can’t make up for the colossal impact of economic activity coming to a grinding halt.
Colombia continues to emerge from the deep. But we wonder how assets of all kinds have been affected. How many firms will file for bankruptcy? How many people have fallen into poverty? How will the financial sector be affected? We’re a long way from having clear answers.
Officially there are 16.1 trillion COP in partly government-guaranteed credit lines. However, up to now only half of that has been disbursed. And half of that reportedly went to retail, manufacturing and construction. Critical sectors like agri-business, mining, real estate and healthcare received little new financing. As expected, credit went to the wealthiest provinces.
Soaring unemployment and the plunge in household consumption speak volumes against lockdowns. But the health implications of contagion, and the coping capacity of the health sector, make the case against allowing unrestricted public interactions. Yet after five months of lockdown, during which the health sector has been propped up, it no longer makes sense to stay home. The pressure to go out and work in a highly informal economy finally had to be felt.
September seems to be the first month since March in which groups of people will not be forced to stay at home. Key activities are to resume without spatial restriction, although some must to take turns. This is welcome news. But without self-discipline, cases will spike, and local governments may re-impose activity restrictions, arresting the pace of economic recovery. The latest Gallup poll shows that concerns about unemployment exceed concerns about COVID-19 by a factor of 3.5 to 1. So we’re far from seeing the end of trying times.
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