Colombia

Colombia's economy is on a recovery trajectory following a challenging period. After a contraction of -0.7% in Q3 2023, GDP began to recover, with growth rates of +0.5% in Q4 2023 and further increases of +0.9%, +1.8% and +2.0% in the first three quarters of 2024. This recovery has been achieved amidst efforts to reduce inflation and manage high spending levels. By September 2024, the economy had grown by +1.6% compared to the same period in 2023.

The recovery has been driven by household consumption, particularly in non-durable goods, and a strong performance in civil works, which boosted domestic demand. However, growth has been uneven across sectors. The agricultural sector and tertiary activities, such as artistic and entertainment activities, have shown strong performance, while secondary activities, particularly manufacturing, have lagged. The construction sector faced challenges due to a contraction in housing, though civil works growth offset this.

Inflation has been steadily decreasing, reaching 5.2% by the end of 2024, down from 9.3% at the end of the previous year, but still overshooting the target band of 3% ±1pp for the fourth consecutive year. Lower food and regulated prices have helped reduce the rate, though service inflation remains relatively rigid, supported by robust tourist flows. By the end of 2024, the monetary policy rate stood at 9.5%, driven mostly by fiscal concerns and spillover effects on the exchange rate from discontinuity in the US administration. The central bank is anticipated to lower interest rates to 7% in 2025, reflecting the convergence of inflation to its target and supporting economic recovery through improved financial conditions. The exchange rate is expected to remain high in the short term but mildly appreciate by 2026 due to reduced external volatility and stabilized domestic financial conditions, reducing competitiveness.
However, the depreciation of the Colombian Peso is exerting upward pressure, compounded by an uncertain fiscal outlook and the larger-than-expected +9.5% increase in the minimum wage delivered in December 2024. This increase is likely to contribute to higher overall inflation as several services are indexed to the minimum wage. Additionally, changes in the composition of the central bank board scheduled for February may alter its cautious stance.

Looking ahead, the economic outlook for 2025 is positive, with expected GDP growth of +2.5%, slightly below national forecasts (+2.9%) and approaching its potential. Inflation is anticipated to fall close to the 3% target by year-end, signaling a more stable economic environment.