Itaú BBA - COLOMBIA – Sharp labor market deterioration in 1Q20 amid lockdown

Macro Latam

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COLOMBIA – Sharp labor market deterioration in 1Q20 amid lockdown

Abril 30, 2020

Labor market loosening hints at considerable consumption fall in 2Q20.

The labor market loosened significantly in March, as the impact from the extensive lockdown and a deteriorated economic outlook filtered through to job losses. The national unemployment rate for Match rose 1.8pp over one year to reach 12.6, while the urban unemployment rate increased 1.4pp to 13.4% (in between the Bloomberg market consensus of 12.8% and our 13.8% expectation). Total employment contracted 7.2% yoy in March, the sharpest decline on record. Meanwhile, the participation rate retreated 4.0pp from March last year to 59.2%, containing a further surge in the unemployment rate but reflective of the downbeat economic environment. 

 Overall, in the first quarter of the year, the national unemployment rate came in at 12.6% in 1Q20, rising 0.8pp over twelve months, hampered by rural job dynamics. Meanwhile, strong activity at the start of the year (the economy was growing around 4% as of February), led the urban unemployment rate in the quarter to tick down 0.1pp to 12.6%. Recent economic developments mean that urban labor market would deteriorate significantly in 2Q20. After adjusting for seasonal factors, the national unemployment rate increased 0.7pp from 4Q19 to 11.2%, the highest print since 1Q11. Total employment in 1Q20 fell 2.7% yoy (585 thousand jobs shed, the worst since 2006; 0.1% contraction in 4Q19). The notable loosening of labor market, amid depressed consumer sentiment and the domestic lockdown measures, hints at considerable consumption fall in 2Q20. 

Self-employment led the widespread job shedding in the quarter. Self-employment fell 3.6% yoy in 1Q20 (2.0% drop in 4Q19), accounting for nearly 60% of total job losses. Private salaried posts declined 1.7% yoy (3.1% rise in 4Q19), while public posts fell 1.2%. Most job shedding occurred in commerce (-307 thousand jobs; -7.2% yoy), entertainment activities (-186 thousand jobs; -8.7% yoy) and farming (-158 thousand; -4.6% yoy). Meanwhile, utilities, food and professional services, together added 267 thousand posts.

As the dual shock from the virus and oil prices filter through to the Colombian economy, further loosening of the labor market is expected. We forecast the unemployment rate to average 12% this year, up from 10.5% last year, with risks tilted to the upside if the economic recovery in 2H20 underwhelms. The economic risks are in line with the central bank continuing to ease monetary policy beyond 3.25% and for fiscal authorities to build on its response package with a focus on protecting income and jobs.


Miguel Ricaurte
Carolina Monzón

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