investment grows faster than private consumption

According to a report by the consulting firm EcolatinJust as the fall has been mixed, the rebound is also heterogeneous. While investment is already 20% higher than pre-pandemic levels, private consumption remains 6% lower. A two-speed recovery is then observed, with some relevant implications for our economy.

“First of all, it should be noted that investment behaves much more volatile than the rest of the demand components: historically, it is falling faster, but it is also recovering faster. Consumption has an “essential” floor, it imposes a limit on its decline, while the absence of growth prospects hits investment much harder. The postponement of productive projects can be much stronger than that of “immediate” purchases.they quarreled.

In this sense, and by way of example, it emerges that investment has fallen by more than three times the GDP in the average of the last three recessions (2014, 2016 and 2018-2019). Concretely, while activity contracted by around 4% during recessive quarters, gross fixed capital formation – the “technical” name of this variable in national accounts – fell by 15%.

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Conversely, investment also tends to go faster in recoveries. Projects tend to pick up as expectations improve, while consumption is more constrained to rebound. When made with savings, the “money” that finances the investment is generally available immediately post-crisis. On the contrary, consumption is generally covered by wages – and jobs – which take longer to recover.

Supply restrictions have also exacerbated this volatility. Whether they want to make an investment or not, a significant portion of them has been held back by quarantine. For example, construction has been restricted for much of the past year for health reasons. Consequently, when the activities reopened, many works resumed simultaneously, generating a more pronounced rebound effect.

At the same time, the recovery in the wage bill is not yet complete: it is 9% below 2019. With the labor market figures for the first quarter, we verify that in one year nearly 500 000 jobs have been lost, at the same time as the real wages of registered workers are 8% lower at the start of 2020. As a result, the main flows that drive consumption, income, are slowly recovering, causing this dynamic.

For the next few months, at Ecolatina, they expect this trend of investment growing faster than private consumption to continue: “Purchasing power and employment will recover slowly at best, while public works will continue to grow vigorously, especially in the past On the other hand, the virtual disappearance of operational restrictions in a context of stock and exchange differences, as well as few possible destinations for private savings , will lead to private construction, accentuating this gap. ”

However, beyond this difference, the two variables will remain in positive territory, “on the one hand because the weak bases of comparison left last year will boost rates for the coming months, and on the other hand because the economy in the second half of the year will be driven by greater fiscal expansion, lower inflation in a context of the ironed official dollar and a recovery in wages, subject to the reopening of joint ventures.