Colombia’s economy is far from reaching a point of equilibrium, according to a report

Entering the final stretch of 2024, bets, projections and proposals begin for the end of the year and the start of the next, mainly in economic matters, while the slowdown does not give way, the deterioration moves to other areas such as the labor market and Calls for a recovery plan to be implemented immediately are becoming more frequent.

Although things are much better compared to 2023, experts warn that the battle is not yet won and it is possible that some indicators will begin to show unfavorable results that will keep economic growth at moderate levels, especially in those sectors that have been in the red for more than a year.

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This time it was Fedesarrollo’s turn, whose economic research team presented their projections and analysis of the results obtained during the first half of the year, highlighting that for them, the country is far from reaching a long-term equilibrium point and the horizon will remain cloudy for some time to come.

“The update of the macroeconomic scenario shows a more favorable outlook for 2023, but still far from the long-term equilibrium of the economy. Despite the acceleration of economic growth and the slight upward revision compared to the previous scenario of Fedesarrollo, this would still remain moderate,” they began by saying.

For these experts, “it is unfavorable that the industrial and commercial sectors, which account for nearly 30% of total productive activity and generate 28.2% of employment in the economy, continue to experience significant declines, without showing signs of of a recovery in the remainder of the year,” because this situation could take its toll in the future.

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Little investment

Reviewing in depth the causes of this misstep, Fedesarrollo zoomed in on the state of investment, pointing out that the low levels at which it is found and the fall seen during the last months have had a direct impact on the slow growth of the economy, leaving in sight a front on which work can be done.

“From the demand perspective, the behavior of training “Gross capital expenditure remains the main barrier to achieving greater economic dynamism, completing five consecutive quarters of contraction, matching the duration of the contraction observed in investment during the pandemic,” they noted.

They also indicated that with this result, gross fixed capital formation has still not recovered its pre-pandemic levels, and the investment rate is below that observed in 2023 and during the pandemic, and they warn that “if this trend is not reversed, Colombia’s potential growth would be 2.3%, compared to the 2.9% estimated in our central scenario.”

Challenge in inflation

As far as the cost of living is concerned, for Fedesarrollo things are going well, however, they put on the table the possibility that the increase in the price of diesel fuel, tolls and a possible high intensity of the La Niña phenomenon, put upward pressure on the prices of goods and services, causing inflation to fall more slowly than expected.

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“Our projections could be affected upwards by factors about which there is a high degree of uncertainty, including the arrival of a high-intensity La Niña phenomenon and the possibility of increases in the price of diesel fuel,” which for them will also influence the decision taken by the Bank of the Republic with the interest rate.

This report closed by talking about the country’s fiscal figures. at this time, which for them show a “challenging panorama”, in which the priority must be the consolidation of public finances in the medium and long term, since they consider that this is still an outstanding issue.

“In 2024, the Government would complete 5 consecutive years with fiscal deficits exceeding 4% of GDP, and would comply with the Fiscal Rule to the limit, with no room to accommodate possible shocks that further affect the revenue projection. This scenario, coupled with the persistence of inflation, has prevented a greater correction in the risk premium in Colombia, making it difficult to reduce interest rates and delaying the pace of recovery of productive activity,” they concluded.

Thus, these analysts concluded by saying that although things are being done well, it is necessary to redouble efforts and focus on important points such as investment growth, the recovery of sectors that are in the red and ensure macroeconomic stability that is maintained over the years.