World Bank Lowers Growth Forecast for Colombia in 2023

The World Bank has lowered its economic growth forecast for Colombia to 1.5% of GDP. The reasons cited by the institution are the difficulties in the mining-energy sector, as well as political instability, both at the local and international levels, which hinder further development. The interest rates maintained by the Colombian central bank at 13.25% also do not support the country’s growth as they significantly increase the cost of debt.

On the other hand, the global financial institution’s forecasts for the Latin America and Caribbean region have increased compared to previous predictions. Consequently, the projection for economic growth in Latin America has risen from 1.4% to the current 2%, a slight increase that, however, remains below other regions of the world, and poverty reduction continues to be a challenge.

Latin American Economy

The growth rates projected for the end of 2023 by the World Bank establish similar indices to those of the previous decade. For example, Brazil is expected to grow by 2.6%; Costa Rica by 4.2%; the Dominican Republic by 3.1%; Ecuador by 1.3%; Mexico by 3.2%; Peru by 0.8%; Guatemala by 3.4%; Uruguay by 1.5%, and Colombia by 1.5%. The institution does not provide data for Venezuela.

What the World Bank does state is that there are three countries that will experience economic contraction. Argentina is the worst affected, with an expected decrease of around 2.5% of its GDP this year. It is followed by Haiti, with a similar drop of 2.5%, and Chile, with a decrease of 0.4%.

“The Latin America and Caribbean region has made significant progress in macroeconomic resilience over the last three decades, which has provided greater resilience to shocks such as rising inflationary pressures, global uncertainty, rising debt, and low commodity prices, with convergence of poverty and employment levels to pre-pandemic levels,” the World Bank’s report states.

Colombia Slightly Reduces Its Growth Forecast

The forecasts for Colombia have been slightly reduced compared to what was projected in June. At the midpoint of the year, the World Bank established an annual growth rate of 1.7% for the country. Now, with less than 3 months left in the year, the projected growth rate stands at 1.5%, which is two-tenths lower.

Andrés Giraldo, Director of Economics at the Universidad Javeriana, states that this lower growth is due to “many reasons, among others, because our main growth driver is not currently dynamic enough, and that is the mining-energy sector.”

“The latest data on the performance of the housing and infrastructure construction sector, two multiplier sectors of the economy, plus the drop in investment in the latest data revealed by Dane, explain the decline in growth in Colombia,” according to the Universidad Javeriana’s representative.

Even other economic analysts believe that the World Bank’s forecasts are too generous and that growth will be even lower, around 1.3%.

What seems to be a consensus among experts is that the decelerated growth will persist at least throughout 2024 and 2025.

Smooth Landing of Interest Rates

Similarly, the International Monetary Fund (IMF) has recommended to central banks worldwide a “smooth landing” in their interest rates, with inflation returning to normalized levels in each country. For the IMF, it is important that central banks’ policies “do not lead to deep declines in economic growth and jobs.”

However, both the US Federal Reserve (FED) and the Bank of the Republic in Colombia have kept their interest rates unchanged in recent meetings. In contrast, the European Central Bank (ECB) slightly increased its interest rates in September, setting the rate at 4.5%, the highest ECB rate since 2001.