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Colombia

More troubles ahead

Last update – January 2024

Country rating 


MEDIUM RISK FOR ENTERPRISE
Economic risk

Moderate risk of payments disruption
Business environment risk
Moderate risk of payments disruption
Political risk

Slight risk of payments disruption
Commercial risk
Serious risk of payments disruption
Financing risk
Moderate risk of payments disruption
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Form of state
 Presidential republic
Head of state Gustavo Petro (President)
Next elections
 2026, presidential and legislative

Strengths & weaknesses

  • Latin America's fourth-largest economy, Colombia’s GDP growth is expected to accelerate
  • Colombia's institutional framework provides stability
  • Popular support allows progress on fiscal tightening and energy transition
  • Exposure to commodity price shocks, non-state actors and porous borders
  • Fiscal policy uncertainty, weak Congressional support and an interventionist agenda have deterred private investment
  • Exchange rate volatility remains on the cards due to diplomatic tensions

Economic overview

Not great, not terrible

Colombia's economy is on a recovery trajectory following a challenging period. After a contraction of -0.7% in Q3 2023, GDP began to recover, with growth rates of +0.5% in Q4 2023 and further increases of +0.9%, +1.8% and +2.0% in the first three quarters of 2024. This recovery has been achieved amidst efforts to reduce inflation and manage high spending levels. By September 2024, the economy had grown by +1.6% compared to the same period in 2023.

The recovery has been driven by household consumption, particularly in non-durable goods, and a strong performance in civil works, which boosted domestic demand. However, growth has been uneven across sectors. The agricultural sector and tertiary activities, such as artistic and entertainment activities, have shown strong performance, while secondary activities, particularly manufacturing, have lagged. The construction sector faced challenges due to a contraction in housing, though civil works growth offset this.

Inflation has been steadily decreasing, reaching 5.2% by the end of 2024, down from 9.3% at the end of the previous year, but still overshooting the target band of 3% ±1pp for the fourth consecutive year. Lower food and regulated prices have helped reduce the rate, though service inflation remains relatively rigid, supported by robust tourist flows. By the end of 2024, the monetary policy rate stood at 9.5%, driven mostly by fiscal concerns and spillover effects on the exchange rate from discontinuity in the US administration. The central bank is anticipated to lower interest rates to 7% in 2025, reflecting the convergence of inflation to its target and supporting economic recovery through improved financial conditions. The exchange rate is expected to remain high in the short term but mildly appreciate by 2026 due to reduced external volatility and stabilized domestic financial conditions, reducing competitiveness.
However, the depreciation of the Colombian Peso is exerting upward pressure, compounded by an uncertain fiscal outlook and the larger-than-expected +9.5% increase in the minimum wage delivered in December 2024. This increase is likely to contribute to higher overall inflation as several services are indexed to the minimum wage. Additionally, changes in the composition of the central bank board scheduled for February may alter its cautious stance.

Looking ahead, the economic outlook for 2025 is positive, with expected GDP growth of +2.5%, slightly below national forecasts (+2.9%) and approaching its potential. Inflation is anticipated to fall close to the 3% target by year-end, signaling a more stable economic environment.

Structural challenges persist

Colombia's economic outlook is characterized by moderate growth and gradual stabilization. Fixed investment is projected to grow by +3.9% in 2025, led by civil works and machinery, with a more robust growth of +7% anticipated in 2026. Residential construction is expected to recover from mid-2025, contributing to economic growth. Private consumption is forecasted to increase by +3% per year in 2025, driven by demand for durable and semi-durable goods, and in 2026, as services gain momentum due to improved labor and financial conditions.

The current account deficit is projected to be 3.2% of GDP in 2025 and 3.5% in 2026, driven by increased imports of capital goods and raw materials, consistent with growing domestic demand. This deficit will be primarily financed by foreign direct investment. Colombia's export sector is experiencing mixed performance. While there has been an increase in non-traditional exports over 2024, this growth has been insufficient to counterbalance the decline in commodity prices. Consequently, total exports have recorded negative growth rates for the second consecutive year. Given the dependence on exports, the unemployment rate is expected to decline to 9% in 2025-2026 on average, with job creation in manufacturing, construction and services. However, challenges remain in labor force participation, particularly among youth and women, and migration flows will play a decisive role.

Structural challenges persist, such as increasing domestic savings and investment to bolster long-term growth potential and compensate for lower government spending due to lower-than-expected revenues. Current gross domestic savings, at 10.5% of GDP, limit the capacity to finance necessary investments. Efforts to diversify exports, attract foreign direct investment and strengthen public and private savings are essential for long-term growth. Addressing these issues will be crucial for future economic sustainability discussions.

Political risk to stay

Gustavo Petro's election as Colombia's first leftist president in decades marked a significant shift, generating both optimism and uncertainty, especially regarding economic and fiscal policies. Concerns about excessive spending and capital flight emerged, though not all materialized. Initially, President Petro had Congressional support through alliances with traditional parties, enabling him to advance social reforms in labor, pension and healthcare. However, his confrontational tone soon dissolved these alliances, leaving him without a stable majority and hindering reform progress, with Congress posing significant obstacles. While inequality is declining and social tensions have eased, his ability to mediate deals with local paramilitary organizations and reduce the effects on the country of the crisis in Venezuela has only partially emerged.

President Petro's early achievements included the 2022 tax reform, which increased government revenues and reassured markets, and the politically challenging but necessary normalization of gasoline prices to address the Fuel Stabilization Fund deficit. Despite these successes, economic challenges have grown. The post-pandemic boom faded, leading to weak GDP performance and sharp declines in investment, with low budget execution rates raising efficiency concerns.

Uncertainty around oil and gas contracts and fiscal rules continues to weaken investor trust. However, Colombia's strong institutions, independent central bank and divided Congress have mitigated major risks by preventing radical proposals. As the 2026 elections near, there is concern that President Petro might attempt to influence monetary policy and break fiscal rules to implement expansive policies for electoral gain.

Trade structure by destination/origin

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Trade structure by product

(% of total, 2023)

Contact 

Luca Moneta
Allianz Trade
+33 (0) 6 70 27 40 16
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