Itaú BBA - COLOMBIA – Labor market unravels in 2Q20

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COLOMBIA – Labor market unravels in 2Q20

July 30, 2020

The extension of the lockdown to the end of August hints at only a slow labor market recovery ahead

The Colombian labor market loosened significantly in June, as the impact from the extensive lockdown and a weak economic outlook filtered through to job losses. The June national unemployment rate increased 10.4 pp over twelve months to reach 19.8%, while the urban unemployment rate rose 14.1pp to 24.9%, slightly above the Bloomberg market consensus and our 24.0% call. Total employment contracted 18.9% yoy in June, while the participation rate retreated 6.1 pp from June last year (containing a further surge in the unemployment rate). While both indicators moderated their declines compared to the prior two months, suggesting the worst of the labor market adjustment has unfolded, the extension of the lockdown to the end of August hints at only a slow recovery ahead, thereby containing consumption dynamics.

In the second quarter of 2020, the national unemployment rate came in at 20.3%, rising 10.2pp over twelve months, with the urban component picking up 13.3pp to to 24.3%. Total employment in 2Q20 fell 21.8% yoy (4.8 million jobs shed), deteriorating from the 2.7% contraction in 1Q20. Job destruction was widespread with private salaried posts falling 25.5% yoy in 2Q20 (1.7% drop in 1Q20), accounting for nearly 50% of total job losses. Meanwhile, self-employment declined 17.9% yoy (-3.6% in 1Q20; representing around a third of total job destruction), as mobility restrictions limit the buffer expected from this category during traditional economic downturns. Public salaried posts fell a milder 3.6% (1.2% down in 1Q20). Most job shedding occurred in commerce, entertainment, and the public administration, while labor in hospitality and construction also shrunk.

As the economy slumps, the average unemployment rate for 2020 will likely reach 17.0%, well above the 10.5% recorded in 2019. The notable loosening of the labor market and depressed consumer sentiment, amid the lockdown measures, hints at a considerable consumption decline this year. With internal demand dampened, the central bank is likely to continue to increase the monetary stimulus, with another 25-bp rate cut at this week’s policy meeting.

Miguel Ricaurte
Carolina Monzón

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