Colombia Economic Outlook
Annual GDP growth held up well in Q1 despite the sharpest-ever interest rate hikes. Turning to Q2, our panelists expect GDP growth to be slowing in year-on-year terms and declining slightly in quarter-on-quarter terms. However, economic developments thus far have been upbeat: The manufacturing PMI rose in April, while inflation ticked down. Recent political developments have been tumultuous: The president asked the entirety of his Cabinet to resign on 25 April after his coalition government broke down due to disagreements regarding a health reform. In a special survey we conducted, our panelists expect the new administration in 2023 and 2024 to continue respecting the fiscal rule and central bank independence. However, Colombian financial assets and governability will likely take a moderate hit.
Inflation eased to 12.8% in April from March’s over two-decade high of 13.3%. Inflation should decline ahead as domestic demand cools and the base effect toughens. That said, inflation is seen staying well above the Central Bank’s 2.0–4.0% target even at the end of 2023. Key factors to watch include fiscal stimulus and the strength of the peso.