Colombia Economic Outlook. June 2024

Colombia's economic growth will begin to accelerate gradually during the second half of the year. Domestic demand is expected to consolidate by 2025. Growth is projected at 1.8% in 2024 and 2.8% in 2025. Inflation will continue to decrease, enabling the Central Bank to expedite rate cuts from the end of the year.

Key points

• Key points:
• The global economy has experienced a soft landing. Inflation will continue to decrease due to reduced dynamics and supply normalization, although concerns will not completely disappear, and rates will remain at contractionary levels for a long time. The world will grow by 3.1% in 2024 and 3.3% in 2025.
• Recovery signals in Colombia are still uncertain, but they indicate that the inflection point should be in the second semester. Lower interest and inflation rates, increased domestic savings, high utilization of industrial installed capacity, and the execution of civil works are positive signals. In the future, households will accelerate spending on goods and moderate it on services, and investment will be driven by civil works and machinery first, and then by buildings.
• Inflation in Colombia will continue to decline, albeit with less momentum in the coming months, to reach 5.4% in December and 3.8% by the end of 2025. The Central Bank could accelerate its rate cuts at the end of the year, positioning it at 8.5% by the end of 2024 and 6.0% in 2025.
• Monetary policy, both internal and external, will be the main determinant of exchange rate behavior. The peso will depreciate in the second half of the year, stabilizing at around 4,200 pesos per dollar during 2025. Macroeconomic imbalances will also drive this performance: a fiscal and external deterioration is expected in 2024; in 2025, the fiscal deficit will be lower, but the external deficit will continue to increase.
• Increasing potential output is the most important challenge facing the country today. Without investment and merely hoping for favorable winds, it will be difficult. It is necessary to be proactive in consolidating the plans proposed in the report to improve growth and the standard of living of Colombians.

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