Colombia Economic Outlook. March 2024

Summary

Improved financial conditions for households and businesses, facilitated by anticipated lower interest rates and inflation, will pave the way for a gradual economic recovery in Colombia throughout 2024, solidifying by 2025. We project a 1.5% GDP growth in 2024 and a further expansion of 2.8% in 2025.

Key points

• Key points:
• The global economy, growing by 3.1% in 2023, is expected to remain relatively stable in 2024 and 2025, with GDP variations of 3.1% and 3.3%, respectively. The ongoing descent of global inflation is poised to pave the way for interest rate cuts in the U.S. and Europe, fortifying global GDP by 2025.
• Colombia's growth outlook hinges on four major determinants. On the upside, increased household savings and improved financial conditions (lower interest rates and expanded credit). Conversely, potential obstacles include sluggish growth among major trading partners and an anticipated decline in job creation.
• Colombia experienced a pronounced slowdown in 2023. These low activity levels will persist early in the year, gradually improving from mid-2024 onwards. Enhanced consumption, particularly in goods, will drive investment, production, and goods trade in the latter half of the year. The housing sector will contribute to these positive trends from late in the year. By 2025, as the performance of domestic demand and construction solidifies, GDP growth will marginally surpass the economy's potential.
• Inflation will continue to gradually decline, from 9.3% at the end of 2023 to 5.4% in December 2024 and further to 3.8% by the close of 2025. Food inflation will remain controlled after a substantial downward correction. The burden of additional inflation reduction will fall on non-food prices. The Banco de la República will adjust its rate to 7.00% by December 2024 and 5.50% by mid-2025, where it will stabilize for an extended period. This decision, coupled with persistent macroeconomic imbalances, will lead to currency devaluation in the coming quarters.

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