Continued strong export growth and industrial expansion should propel the economy forward with consumption contributing a lesser share.  Nevertheless, panellists anticipate growth to be below the government’s 3.8% target agreed to with the International Monetary Fund (IMF).

Annual inflation on a downward path.  Consumer prices rose 1.0% in January over December, which brought down annual inflation from 8.75% in December to 8.5% in January - the lowest level in thirty years.  Food and culture/recreation prices led the monthly increase, rising 2.1% and 2.3% respectively.  Clothing and housing remained at the bottom end of the consumer price increase with 0.2% and 0.3% over December.  Panellists still believe the Central Bank’s 8% inflation target is overly optimistic.  In fact, the Central Bank is expected apply some monetary tightening in order to bring down inflation.  This month’s Consensus Forecast expects the benchmark DTF interest rate to rise throughout the year.  Nevertheless, panellists have become more confident that the Central Bank will have to tighten to a lesser degree than anticipated last month as evidenced by the downward revision of the interest rate forecast in this month’s Consensus Forecast over last month.

Fiscal balances receive relief.  On 29 January, the government and the IMF reached an agreement to raise the fiscal deficit target for this year from 2.5% to 2.8% of GDP.  The government had requested the adjustment in lieu of a Supreme Court decision in late October last year that mandated retroactive inflation salary adjustments for federal employees.  While the government is confident that the new tax reform law will provide for the necessary funds, concerns about the likely effect of tax increases on economic activity prompted the petition for more fiscal flexibility.  Even though oil prices are expected to remain at the current budgeted price, the government will also have to remain vigilant of developments in the oil sector, since price declines could serve to undermine the fiscal balance.  Nevertheless, this month’s Consensus Forecast does not foresee unexpected developments to undercut this year’s fiscal stability, with the deficit anticipated to be on target with the new IMF fiscal agreement.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Colombia.  For more details please click here.

For five-year forecasts, please click here.