IMF Once Again Lowers Forecast for Colombia’s 2017 GDP Growth to 2.0%

In an updated world economic outlook, the International Monetary Fund (IMF) has dropped its expectations for growth in Colombia this year. In April, the global organization predicted that the nation’s gross domestic product (GDP) would increase by 2.3%, but now it is only expecting just 2.0% GDP expansion this year.

If the prediction comes true, it would match Colombia’s 2.0% growth rate in 2016, the Andean nation’s worst economic year since 2009 during the height of the global economic downturn.

The turn toward pessimism is even more pronounced when compared to the IMF’s prediction at this time last year. In July 2016, the IMF expected Colombia’s GDP to grow by 3.0% in 2017, a full percentage point higher than the current forecast.

“In Colombia, guided by timely policy tightening, the orderly economic slowdown has continued this year as domestic demand — particularly investment — adjusts to a permanent shock to national income from decreased oil prices,” wrote Alejandro Werner, director of the Western Hemisphere for the IMF, in his analysis.

The IMF has, however, maintained its prior expectations for Colombia’s 2018 growth rate at a steady 3.0%. Werner says that the longer-term view is more favorable for recovery given macroeconomic factors as well as internal policies surrounding a significant tax reform passed last December, massive investment planned for infrastructure, and the continued implementation of the peace accord signed late last year between the administration of President Juan Manuel Santos and the Revolutionary Armed Forces of Colombia (FARC) guerrilla group.

“The monetary policy easing cycle that started with inflationary pressures dissipating should support the near-term recovery,” wrote Werner, “while the peace agreement, the infrastructure agenda, and the investment-friendly tax reform should support medium-term inclusive growth.”

The latest IMF World Economic Update forecasts Colombia GDP growth to hit just 2.0% for the second straight year. (Credit: IMF)

In its update, the IMF also lowered its forecast for the entire Latin American and Caribbean region, albeit only slightly. It now expects 1.0% growth this year in the region compared to the 1.1% prediction it made in its April “World Economic Outlook” report.

While still representing slow growth, this would be a marked improvement for a region that was in recession in 2016, with a 1.0% contraction largely caused by negative rates in Brazil (which contracted by 3.6% last year), Argentina, and Venezuela.

Still, the IMF is only forecasting 1.9% growth for the region in 2018, highlighting the ongoing struggle facing Latin America’s largest economies as commodity prices remain low and domestic demand continues to be weak in many locations.

Many countries also will have major elections within the next 18 months, including presidential elections in Chile, Colombia, Mexico, and Brazil, and a mid-term congressional election in Argentina in October. Some nations, including Brazil and Peru, are also still dealing with major corruption scandals that are disrupting political agendas and adding uncertainty to the horizon.

The IMF is forecasting 2017 GDP growth in both Mexico and Peru — the only two large economies in the region to outpace Colombia’s 2.0% growth in 2016 — to come in lower than last year. Mexico is now expected to record 1.9% growth in 2017 (down from 2.3% in 2016), while the forecast has Peru at 2.7% (down from 3.9% in 2016).

“Amid low confidence, domestic demand continues to remain weak across most economies, and is expected to only recover slowly as actual output catches up to potential and internal sources of growth build strength, based on a decline in political and policy uncertainty across some major economies,” wrote Werner. “Some countries in the region will need clear strategies to adjust further following a permanent loss in commodity revenues.”