The Organization for Economic Cooperation and Development (OECD) has released its forecasts for the Colombian economy. The projection, overall, marks a downward revision for the second consecutive time compared to the previous reports. Compared to two months ago, the international organization has revised the country’s growth, placing it at 1.2% by the end of this year, which is 0.3 percentage points lower than the latest forecast. For 2024, the GDP growth forecasts stand at 1.4%.
Similarly, according to the same document, the annual inflation rate would hover around 5% by December 2024. Regarding oil trade, Colombia’s primary legal export, it is expected to remain low throughout the coming year, along with gas, and according to the document, would be the primary contributor to the country’s economic stagnation.
Among the arguments, the new projection states that the country continues to bear the brunt of high-interest rates, potentially impacting consumer behavior. In this regard, the OECD aligns itself with the Colombian government’s stance and that of most economic experts, viewing the still-high rates maintained by the central bank as a significant obstacle to fostering growth recovery.
Low Business and Consumer Confidence
The text states that “GDP growth has substantially slowed since late 2022, and consumer and business confidence remains relatively weak.” Private consumption and investment have also declined, the latter by 18%, compared to the average of 22% between 2014 and 2019.
However, the OECD notes that the economic stagnation has not affected the Colombian labor market, which has maintained stable or even growing employment rates, according to the latest available data.
Likewise, the report warns of the impact that climatic conditions could have on the economy. It is expected that the El Niño phenomenon will affect Colombia’s climate until the middle of next year. “The severity of the current El Niño meteorological phenomenon, which could cause droughts leading to food price pressures due to decreased harvests, is expected to peak in early 2024,” warned the OECD.
Recommendations for Colombia
The international organization provides a series of recommendations to correct the economic drift, urging President Petro’s government to clarify its legislative agenda, which the OECD describes as “ambitious and accelerated.”
The controversial policies and doubts raised by the slow progress and lack of consensus on social reforms in the country’s Congress create an evident climate of uncertainty that affects the economy and drives away investment.
Within this political uncertainty, the OECD mentions the Colombian president’s recent proposal not to comply with the Fiscal Rule, something that would allow increased public investment but, as indicated, raises serious doubts about the state’s capacity to fulfill commitments to foreign investors. In this regard, it is recommended to “improve the effectiveness of public spending and revenues” to ensure compliance with budgetary rules and stabilize debt.
Likewise, the report calls for improvements in productivity and equity, proposing to “increase incentives for formal job creation and reduce the costs of unpaid labor.”