Colombia Economic Outlook. Fourth quarter 2021

Summary

Colombia's GDP will grow 9.2% in 2021, led by domestic demand, and 4.0% in 2022, with improved export performance. In the remainder of 2021 and in 2022, external and local pressures on inflation will remain. Banco de la República started its rate hike cycle.

Key points

• Key points:
• Consumption, especially private consumption, has been leading the recovery: it will grow 12.2% in 2021 and 4.1% in 2022, with a gradual rebalancing from spending on goods to services. Investment, despite growing 13.1% in 2021, will not be able to recover its pre-pandemic levels. In 2022, investment will grow 4.5%.
• In 2021, the improved outlook for domestic demand will put upward pressure on the current account deficit, to a level of 5.0% of GDP. By 2022, moderating domestic demand, reviving services exports and higher oil production will help moderate the current account deficit to 4.5% of GDP.
• In the remainder of 2021 and in 2022, external and local pressures on inflation will continue. In 2021, inflation will close at 4.9%, pressured by higher food prices. In 2022, it will decelerate to 3.9%. Core inflation will begin to accelerate as the economic reopening consolidates, while food pressures will ease in 2022.
• Banco de la República started its rate hike cycle. We expect it to bring the policy rate to its neutral level of 4.5% by the end of 2022.
• With the tapering, the reduction of monetary expansion in the United States, and the Colombian political cycle, the exchange rate will remain high, but limited by the monetizations being made by the government. The average annual exchange rate is estimated at 3,710 in 2021 and 3,755 in 2022.

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