Recovery in prospect as cyclical low passes
The authorities have trimmed policy interest rates regularly since the middle of last year (to 3.25% at the beginning of April). And with annual inflation remaining well under control, there is scope for further cuts if necessary to stimulate the economy. We also expect fiscal policy to be supportive in the run-up to presidential elections in 2014. The government may extend policy support to the industrial and construction sectors.
FDI flows to the energy and mining sectors reached over US$13b last year, and should help ensure expansion in the longer term as the global outlook improves. Opportunities for growth from trade have also increased with the signing of a free trade agreement with South Korea this month and the prospect of one with the EU soon.
A prompt, successful outcome to peace negotiations between the Government and the FARC guerilla group would boost output and confidence – and attract more inward investment.
The pace of growth in Colombia has slowed over the past year as export growth was sluggish and industrial activity fell sharply in Q4. But we think the economy has now reached a cyclical low and will begin to pick up again during 2013, with growth averaging around 4%.
Real GDP growth
Source: Oxford Economics.
Inflation
Source: Oxford Economics.
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