Weak Growth of the Colombian Economy in 2023

The Colombian economy grew 0.6% last year. This data was revealed yesterday, when the National Administrative Department of Statistics (DANE) announced that the economic growth for the fourth quarter of 2023 was 0.3%. With this, Colombia moves away from the feared economic recession, something that occurs when two quarters of negative growth are accumulated; however the figure indicates a significant deceleration of growth.

Colombia’s economic growth nearly stalled in the last quarter, showing almost no increase, when analysts had anticipated growth close to 1%. This outcome, mirroring the expectations for the nation’s Gross Domestic Product (GDP) for the entire year of 2023, has raised concerns among the country’s economic policymakers.

The government has welcomed the avoidance of a recession, noting areas for improvement. However, trade experts are worried about the minimal growth and the uncertain outlook for Colombia’s economy in 2024.

Factors of concern for the government

The Minister of Finance, Ricardo Bonilla, has affirmed that these data should be the beginning of the recovery, with a rebound in growth during this year. However, the minister highlighted three factors of concern for the government:

First, what has decreased the most is the inventory turnover, that is, investment, the gross formation of fixed capital, which is expressed in the fact that companies are reducing inventories. He said that this is also happening in construction and that they are not initiating new processes.

Second, housing construction continues to be the determining sector, despite the slight recovery in the fourth quarter of 2023.

Third, and this is is what is really blocking a key industry, is the smuggling of textiles and clothing. This means, according to him, that customs control work must be stepped up.

“By 2024 we aspire to reach a growth of 1.5%. For this we need to bring both public and private investment in line and for the Bank of the Republic to continue to send a positive message to the country in terms of rate reduction. The fall in inflation is helping to make this possible,” said the minister.

Concerns of economic agents

The president of the National Association of Colombian Businessmen (Andi), Bruce MacMaster, described the situation as bad news. “We ended up having a growth of 0.6% and we had talked about a growth between 0.5% and 1%,” said MacMaster after learning about the small growth figure for 2023.

According to the business leader, these data will have negative consequences for employment and for the state’s revenue. MacMaster has insisted that the country needs reactivation policies to compensate for the situation, and also pointed out that the high interest rates maintained by the issuing bank did not favor the increase in demand. For MacMaster, it is urgent to reactivate investment, which suffered a 24% drop in 2023, “to reactivate demand and the product and added value”.

Last year’s meager growth figure “is a warning that we have a complex 2024 (ahead) and that the great challenge must be economic growth. For that, we need to work together with the government,” said the president of Andi.

“The worst data of the century”

Even more critical was the reaction of the president of the National Federation of Merchants (Fenalco), Jaime Cabal, who pointed out that “the behavior of the Colombian economy in 2023 is the worst in this century, with the exception of 2020, the year of the pandemic.”

Cabal affirmed that the deceleration seen particularly in strategic sectors such as commerce, industry, construction and agriculture substantially affected the result. “It is definitely very bad data that deserves urgent actions led by the national government to avoid falling into a recession,” said the president of the traders.

In addition, the leader of Fenalco warned that “under this scenario we cannot continue sponsoring the deterioration of the economy and business confidence. We once again call on the national government to move forward with the shock plan that the business sector has been proposing and that has had no response.”

Calls to lower interest rates

What almost all the key players involved in the economy have agreed on, from the government, opposition and even trade union representatives and financial experts, is to repeat the call to the Central Bank to be bolder in lowering interest rates.

In this regard, the two decreases decreed since December have been minimal, and the price of credit in Colombia today is still at 12.75%, a situation that puts strong pressure on the economy, since it denies access to credit for many citizens and companies, which decreases demand and slows down consumption.

Despite the challenges of rising inflation and sluggish economic growth, Colombia is urging its central bank to cut interest rates by as much as one percentage point at its upcoming meeting in March. This move would be contrary to the advice given by the International Monetary Fund (IMF) during its annual review of the country this week.