Colombia Economic Outlook
Economic growth decelerated further in Q4 in year-on-year terms. The annual slowdown was broad-based and due to a base effect. In sequential terms, growth sped up slightly. Turning to Q1, both annual and sequential growth rates are likely weakening amid rising inflation and interest rates. Compared to Q4, consumer sentiment became more pessimistic in January and the manufacturing PMI fell deeper into contractionary territory in January–February. In other news, over the last month the president submitted to Congress a four-year development plan and bills to reform the health system and raise public spending this year. While higher government spending should boost growth, the radical nature of some of the reforms also threatens to undermine investment and the stability of the governing coalition—a cabinet reshuffle took place in early March.
Colombia Inflation
Inflation was steady at 13.3% in February—the highest print since March 1999. Inflation should cool in 2023 as domestic demand and commodity prices ease. However, inflation is seen lingering well above the Central Bank’s 2.0–4.0% target even at the end of 2023. Key factors to monitor include fiscal stimulus and the strength of the peso.