Colombia’s Finance Minister Mauricio Cárdenas has lowered his forecast for the nation’s economy to 2.0% gross domestic product (GDP) growth this year, down from an earlier projection of 2.3%.
This more pessimistic outlook, which came on the same day that the International Monetary Fund released the same downgrade in expectations in its world economic update, predicts that Colombia will match its 2.0% growth rate from 2016, which was its lowest figure since 2009.
Low oil prices have continued to weigh on the nation’s economy and domestic demand has remained weak given the overall climate on top of a controversial tax reform passed in December that increased the national value-added tax (VAT) from 16% to 19% in order to make up for a large hole in the federal budget due to the loss of oil revenue.
Cárdenas said that the Ministry of Finance and Public Credit has also lowered its forecast for GDP growth in 2018 from 3.5% to 3.0%. The IMF projects the same 3.0% increase for the Colombian economy in 2018.
Earlier this month, the finance minister said that the slow growth has led his department to make massive spending cuts to the 2018 budget proposal that he is expected to submit to Congress later this week. In an interview with the Bogotá-based publication El Tiempo, Cárdenas said his budget may call for cuts of as much as 5 trillion pesos, or around $1.6 billion USD at the current exchange rate.
While 2.0% growth is very low by Colombia’s recent historical standards — GDP grew by 4.4% in 2014 and 6.6% in 2011, per the World Bank — this rate still puts the nation ahead of most of its regional peers. Among large Latin American economies, only Peru (3.9%) and Mexico (2.3%) realized growth above 2.0% in 2016. Brazil (-3.6%), Argentina (-2.2%), and Venezuela (-18.0%) were all in recession.
For 2017, the IMF forecasts that only Peru (2.7%) and Argentina (2.4%) will beat its current 2.0% projection for Colombia. “These forecasts for Colombia’s growth are much higher compared to the other scenarios in Latin America,” said Cárdenas.”In fact, the IMF expects the region this year to grow 1.0% — we will grow 2%. And next year 1.9% for the continent — and 3% for us.”