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Colombia
Economic growth is projected to remain robust in the coming two years, despite external headwinds.
Investment will be a key driver of growth, aided by tax reforms and ambitious infrastructure projects. Low
interest rates will support consumption, while unemployment will start falling. High inequality and informality
will remain major policy challenges.

The mildly accommodative monetary policy stance is appropriate, with inflation expectations close to target
and still high unemployment. Fiscal policy will need to consolidate to reduce the deficit gradually in line with
the fiscal rule. Boosting productivity requires stronger competition and increased openness to trade. A better
targeting of social policies and reforms to boost job quality and reduce informality would allow for more
widespread sharing of the benefits of growth.

Consumption and investment are driving growth

Economic growth has risen, fostered by strong domestic demand driven by improving credit markets and
a positive response from companies to the tax incentives granted in a recent tax reform. The current
account deficit has widened, as imports are rising while export performance remains weak. Unemployment
has increased despite stronger growth, as employment creation remains too feeble to accommodate the
labour force increase due to immigration. Inflation has increased in 2019, driven mainly by increases in
food prices and a moderate effect of the peso depreciation, but it remains within the target range.

Colombia
Robust investment is driving growth Inflation remains contained
Contributions to real GDP growth
% Pts Y-o-y % changes
10 Real GDP growth 9
Headline inflation
Private consumption Core inflation¹ 8
8
Government consumption Inflation expectations² 7
Investment
6 Net exports 6

5
4
4

2 3
Inflation target range
2
0
1

-2 0 0 0
2010 2012 2014 2016 2018 2020 2015 2016 2017 2018 2019

1. Core inflation excludes primary food, utilities and fuel.

2. Inflation expectations are defined as the 12-month ahead inflation expectations.
Source: Banco de la República; and OECD Economic Outlook 106 database.

StatLink 2 https://doi.org/10.1787/888934045202

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019
108  ECO/CPE(2019)12

Colombia: Demand, output and prices

2016 2017 2018 2019 2020 2021

Current
Percentage changes, volume
prices COP
(2015 prices)
Colombia trillion

GDP at market prices 863.8 1.4 2.6 3.4 3.5 3.3

Private consumption 596.5 2.1 3.6 4.7 3.9 3.5
Government consumption 125.6 3.8 5.6 2.9 3.5 3.1
Gross fixed capital formation 191.2 1.9 1.5 4.6 5.3 4.5
Final domestic demand 913.3 2.3 3.5 4.4 4.1 3.7
Stockbuilding1 9.0 -1.2 0.4 0.3 0.1 0.0
Total domestic demand 922.2 1.2 3.9 4.6 4.2 3.7
Exports of goods and services 127.1 2.5 3.9 4.0 4.0 3.3
Imports of goods and services 185.6 1.2 7.9 8.8 5.5 3.6
Net exports1 - 58.5 0.1 -1.0 -1.2 -0.6 -0.3
Memorandum items
GDP deflator _ 5.1 3.7 4.1 3.5 3.3
Consumer price index _ 4.3 3.2 3.5 3.6 3.0
Core inflation index2 _ 4.9 2.9 2.9 3.3 3.0
Unemployment rate (% of labour force) _ 9.4 9.7 10.1 9.2 9.0
Current account balance (% of GDP) _ -3.3 -4.0 -4.2 -4.2 -4.2
1. Contributions to changes in real GDP, actual amount in the first column.
2. Consumer price index excluding primary food, utilities and fuels.
Source: OECD Economic Outlook 106 database.
StatLink 2 https://doi.org/10.1787/888934046266

Further structural reforms are needed to boost inclusive growth

Fiscal policy needs to consolidate to reduce the central government’s structural deficit to 1% of GDP, in
line with the fiscal rule, and to stabilise the public debt-to-GDP ratio. The tax reform going through congress
will boost investment. But further measures to raise revenues are likely to be needed in the medium term
to meet the fiscal rule and the necessary social and public investment expenditures. It is essential to boost
tax revenues in a sustainable manner, while at the same time achieving a tax system more favourable to
growth and equity. This could be attained by broadening the bases of personal taxes and VAT, and
reducing the corporate income tax rate and eliminating its numerous tax exemptions. To increase
revenues, environmental taxes and tax administration efficiency could be boosted.
Stronger and more inclusive growth requires boosting productivity through structural reforms. Raising
competition, improving port and customs logistics, and reducing trade and non-trade barriers and
regulatory burdens would increase exports, make firms more productive and create quality jobs. The large
inflow of migrants can help to boost potential growth, which has fallen in recent years due to lacklustre
productivity. However, this requires continuing with the integration policies that help absorb migrants in the
formal labour market, as well as investment in training and healthcare systems.
To ensure that the benefits of growth are more widely shared by all, a comprehensive strategy is needed
to foster the creation of formal high-quality jobs. This requires reforms in various areas, such as reducing
non-wage labour costs, reviewing the minimum wage system to achieve more job-friendly outcomes,
improving the quality and relevance of education and training, and adopting measures to integrate more
women into the labour market. Reforming the pension system is urgent to reduce old-age poverty and
inequality.

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  109

Growth is projected to stay robust

Growth is set to remain strong, supported by higher domestic demand. Investment will be a key driver of
growth, aided by a lower tax burden and ambitious infrastructure projects. Still low interest rates, inflation
within the target of the central bank, and decreasing unemployment will support consumption. The current
account deficit will widen in the context of demand-driven growth and weaker export performance. Upside
risks include higher oil prices, which could boost investment further. Downside risks include stronger-than-
anticipated weakness in the external environment, driven by trade tensions and regional instability, and
additional delays in infrastructure projects.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019