IMF cuts Colombia’s GDP forecast for 2023

IMF Building, Washington D.C/IMF

In its most recent report, the International Monetary Fund (IMF) slashed Colombia’s GDP growth forecast for 2023 to 2.2%, down more than five percentage points from the country’s current standing at 7.6%.

The rapid deceleration of an economy that has outperformed all others in South America and Caribbean this year, despite rising inflation and political instability regarding the outcome of a presidential election, the IMF’s World Economic Outlook highlights that global economic activity is “experiencing a broad-based and sharper-than-expected slowdown” and weakest growth profile since 2001, “except for the global financial crisis and acute phase of the COVID-19 pandemic.”

Global inflation should decline from 8.8% to 6.5% in 2023, but “for many people 2023 will feel like a recession,” states the report.

“The global economy faces steep challenges as the world’s three-largest economies continue to stall and the worst is yet to come,” noted Pierre-Olivier Gourinchas, the IMF’s Chief Economist. “Inflation pressures were proving more persistent (in 2022) than anticipates and rapidly rising prices are causing serious hardship for households almost everywhere, particularly the poor.” The Washington-based institution also downgraded the forecast for the world’s second-largest economy, China, from its original 4.6% to 4.4%. China accounts for one-fifth of the global economy and is integral to supply chains.

The United States’ GDP is projected to grow one percentage point next year, and Euro Zone 0.5%. The best performing economies in 2023 will be Spain (4,3%); United Kingdom (3,6%); Canada (3,3%) and Italy (3,2%).

The fund’s Colombia projection is above the official government’s estimate of 1.7% and Central Bank’s – Banco de la República – weak 1%. Unemployment in Colombia will remain steady near 11%.  The Colombian peso also appears to remain steady to the US dollar at an exchange rate near 4,000 pesos, driven by global demand for the country’s exports and commodities.

The Organization for Economic Co-operation and Development – OECD – also lowered Colombia’s growth outlook for 2023 to 2.1%, noting that “inflation has risen well above target, initially driven by food and energy prices, which have particularly affected low-income households.”

The organization warned that the country’s “growth and social inclusion are trapped by weak structural policy settings that preclude more than half of income earners from formal jobs and social protection, while preventing firms from growing and becoming more productive.” The OECD believes that “solving this vicious circle through ambitious reforms would allow a significant leap forward for material well-being in Colombia.”