Colombia Economic Forecast

The economy weakened more than expected in Q2, nearly stagnating year on year and contracting quarter on quarter. The deceleration in year-on-year GDP growth was caused by slowing exports and private spending plus a sharper fall in fixed investment. Activity was likely knocked by the highest interest rates since the 1990s; banks issued less monthly credit to consumers in April and May than in Q1 on average. Heading into Q3, the economy is expected to gather steam but remain weak. Inflation and interest rates remain high, contributing to a sharper fall in manufacturing activity in July–August than in Q2. In other news, the President said he would seek to renegotiate a trade agreement with the U.S., which he stated was hurting agricultural output and employment. Shortly afterward, the CEA—a trade group representing U.S. firms—said the remarks could deter U.S. investment in Colombia.

Inflation eased to 11.4% in August from 11.8% in July. It should continue to cool ahead as domestic demand weakens and the base effect toughens. That said, inflation is seen remaining above the Central Bank’s 2.0–4.0% target even at the end of 2024. Key factors to watch include commodity prices, fiscal stimulus and the strength of the peso.