Unlocking the Macroeconomic Potential of Colombia - Essay Sample

Introduction

Macroeconomics is a branch of economics that deals with structure behavior, performance, and decision-making in a country as a whole. According to Welsch and Kuhling (2016), macroeconomics focuses on the various operations taking place in a market on a large scale. Some of the phenomena studied under the discipline include the extent of economic growth, national income, gross domestic product (GDP), and unemployment changes (Welsch & Kuhling, 2016). Colombia is a country located in the north of South America. Primarily, this paper aims to study the macroeconomics of Colombia by focusing on critical indicators such as GDP, unemployment rate, national income, and extent of economic growth.

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Economic Outlook of Columbia

Columbia has practical macroeconomics and fiscal management technique despite the numerous economic failures and downturns. The country has managed to maintain its rate and levels of investment since the year 2013 ('Overview,' 2018). Columbia witnessed a slowed economic growth in the year 2017, but it later accelerated in the first half of 2018 ('Overview,' 2018). The economic growth between those years could be attributed to the increased private consumption and investments as well. The country's economy is likely to witness consistent growth due to the rise in ventures and changes made to monetary policies. Notably, by the end of this year, the economy is projected to accelerate to 3.6% if the private consumption remains strong ('Overview,' 2018).

The profitability in the oil sector could incentivize investments in exploration and exploitation. Other factors likely to affect economic growth include the financial condition of the domestic market in Colombia. Economists argue that inflation is expected to remain within the targeted range of the Central Bank. Some of the factors that influenced the monetary policy changes were weak economy activities and price expectations. The Central Bank of the country cut the policy rate to ensure that it remained accommodative for domestic and foreign investors. Some of the critical aspects of the Colombian economy that will be analyzed in this paper include inflation, employment rate, GDP (Gross Domestic Product), and GNI (Gross National Income).

Gross Domestic Product

Colombia is an emerging market economy. According to Depersio (2015), the country has a much lower GDP per capita than the United States and other developed nations. In addition to that, the Human Development Index (HDI), which is a measure of a country's life quality, falls below the minimum required for a country to be under the category of a developed nation. The levels of poverty and political instability in Colombia are high, while the business and industrial activity of the government is lagging when compared to developed states. With this in mind, Colombia is an emerging country. However, the GDP and overall state of the economy is much better when compared to its peers that fall under the category of developing nations.

GDP refers to the market or monetary value of finished goods and services produced in the borders of a country within a particular time frame (Welsch & Kuhling, 2016). As a measure of domestic production, the GDP functions as a scorecard for the economic health of a country. In a bid to analyze its economic progress, Colombia examines its GDP quarterly. In late 2019, the GDP of Colombia had grown by 0.6% compared to the previous quarter ('Colombia GDP - Gross Domestic Product 2019,'n.d.). The figure of the GDP in the third quarter of 2019 was $79,437 million ('Colombia GDP - Gross Domestic Product 2019,'n.d.). Notably, Colombia is the fourth biggest economy in Latin America. In recent years, the country's economy has rapidly grown due to the increase in exports of commodities such as coffee, oil, and coal. The growing sectors of the country's economy are the financing, insurance, real estate, and business services, trade, repairs, hotels and restaurants, and warehouse and communication, to mention a few ('Colombia GDP Growth Rate, 2001-2019,' n.d). In addition to that, mining, quarrying, and manufacturing activities generate about 20% of the country's wealth ('Colombia GDP Growth Rate, 2001-2019,' n.d).

Unemployment Changes

In matters concerning unemployment, Colombia has the highest unemployment rate. Notably, the extent of unemployment has worsened within the last few years. The surge in unemployment resulted due to a crash in the global commodity in the year 2014, which hit most of the world's economies (Colombia Reports, 2019). Colombia was the worst hit following the unrecovered surge in the unemployment rate. In addition to that, unemployment in the region is exceptionally high among young people below the age of 24 years (Colombia Reports, 2019). It is worth noting that more than one of four young Colombians is unemployed regardless of their education levels (Colombia Reports, 2019).

Consequently, unemployment among women was higher when compared to men. As indicated, the disparities between men and women in matters concerning employment results from gender inequality in the area. Notably, unemployment among women was 70% higher than that of the men in the year 2019 (Colombia Reports, 2019). Notably, the rate of unemployment is imminent among women aged 28 years and below, regardless of their qualifications as well. Importantly, the high unemployment rate in Colombia can be attributed to the mass displacement and urbanization in the region that occurred in the 1990s and early 2000s (Colombia Reports, 2019). The movement played a substantial role in causing significant disparity in employment in large cities of the world and the countryside as well. The economic policy of the current government in Colombia that aims at prioritizing agro-industrial projects has contributed to rural unemployment rates.

Further, most of the employed Colombians do not have formal jobs. As such, they do not receive social security benefits associated with formal employment. Another critical issue in Colombia is underemployment. The agency of Colombia considers a person to be employed when they work for one hour every week. Accordingly, this is not a living wage hence showing that underemployment is a critical issue. Lastly, the economically active labor force supports retirees and minors. The economically active people in the country constitute about half of the entire population of Colombia (Colombia Reports, 2019).

Inflation

Inflation refers to the quantitative measure of the extent to which the price levels of a basket of goods and services within an economy increases with time (Welsch & Kuhling, 2016). The rate of inflation is the rise in the prices of products where a currency unit buys less than it did before. In Colombia, the inflation rate over the past four decades has been between 2.0 to 30.3% ('Inflation rates in Colombia,' n.d.). In the year 2019, the rate of inflation was 3.5% ('Inflation rates in Colombia,' n.d.). During the period of observation, from the years 1979 to 2019, the average rate of inflation was 14.5% per capita ('Inflation rates in Colombia,' n.d.). In addition to that, the average price of commodities in the year 2018 was 3.2% and has been under control, considering that it was 30% in the year 1990 ('Inflation rates in Colombia,' n.d.). The drops in the prices of oil in the year 2014, among other factors in the economy, have a significant role to play in influencing the inflation rate of the country. In particular, the year 2014 saw a decline in oil prices, which contributed to high consumer prices ('Inflation rates in Colombia,' n.d.).

In the year 2020, the rate of inflation as of January was 3.62 percent, which was a significant drop from 3.80% in the previous month ('Colombia Inflation Rate, 1955-2020,' n.d). January witnessed the lowest inflation since June last year despite the slowdown in the costs of beverages, tobacco, food, utility housing, liquor, and information and communication. A general description showed that consumer prices increased by 0.42% in January 2020 as opposed to the 0.26% increase in December 2019 ('Colombia Inflation Rate, 1955-2020,' n.d).

National Income

The Gross National Income (GNI) is the measure of the income of a country. Importantly, it constitutes all the income that residents and businesses within a country earn, including the amount received abroad. Income, as Welsch and Kuhling (2016) defined, refers to the compensation of the employees plus the profits accrued from investments. It also constitutes product taxes that have not been calculated minus any forms of subsidies. Notably, GNI excludes the income earned by foreigners within the country and does not include any amounts derived from the black market or through shadow activities. According to Welsch and Kuhling (2016), the Gross National Income (GNI) per capita is the national income divided by the population of a country. GNI is calculated in a country's national currency and is first converted to US dollars at official rates of exchanges for comparisons with other economies.

GNI differs from GDP since GNI measures the income of residents and businesses within a country regardless of its areas of production. In contrast, GDP measures the pay of any individual within the boundaries of a nation. In addition to that, GDP does not concern itself with the person who produced products. Instead, it includes anything earned by foreigners and international ventures when in the country. When GDP is concerned with the production, GNI focuses on income. GNI includes measures of GDP plus salaries, property, and wages of the residents of a country in foreign nations while also including net taxes and subsidies acquired from abroad.

The GNI per capita in Colombia (Current Local Currency Unit) was 19,007,230 by the year 2018 ('Colombia - GNI per capita,' 2018). The GNI reached its maximum value for the last 58 years in the year 2018, and the minimum amount was in the year 1960 when it was 1,661 ('Colombia - GNI per capita,' 2018). In addition to that, the value of the GNI per capita in constant 2010 US dollars in Colombia was 7,416 in the year 2018, which depicts a fluctuation from 7548 in the year 2016 ('Colombia - GNI per capita,' 2018). Further, the GNI per capita growth represented in the annual percentage in Colombia was 0.80 in the year 2018, with a maximum value witnessed in the year 1978 and a minimum in the year 1999 when it was 6.27 and -5.64 respectively ('Colombia - GNI per capita,' 2018). The figures show the annual percentage growth rate of the GNI represented as a constant local currency unit. The maximum value of GNI, in the year 2018, shows that the income accrued by the citizens of the country is significantly improving. From this, it is clear that the country's income level has been increasing within the last 50 years, with its peak being in 2018.

Conclusion

Primarily, this paper discusses the macroeconomic situation in Colombia. Colombia is an emerging nation but has a better and improved economy when compared to other developing countries. The rate of inflation is well-maintained. However, employment remains a significant challenge with the heightened standards of unemployment in the region today. By the end of the year 2019, the GDP and the GNI of the country have increased hence showing a significant improvement of the economy. Therefore, the conclusion that one can derive from the analysis is that Colombia is well-positioned economically.

References

Colombia GDP Growth Rate, 2001-2019. (n.d). Trading Economics. https://tradingeconomics.com/colombia/gdp-growthColombia GDP...