Bogotá Research Group Fedesarrollo Forecasts Colombian GDP to Grow by Just 2.4% in 2018

In an updated projection, Colombian economic research group Fedesarrollo has forecast Colombian gross domestic product (GDP) to grow by just 2.4% in 2018, below the bulk of more optimistic predictions from various other groups.

The International Monetary Fund (IMF), for example, projected growth of 3.0% earlier this year while the World Bank’s expectation came in at 2.9%.

In this sense, Fedesarollo continues the trend of domestic groups generally expecting lower growth than foreign organizations, with Medellín-based Bancolombia setting its sights at 2.5%, the Colombian central bank (Banco de la República) landing at 2.7%, and Bogotá-based economic research group ANIF predicting just 2.3%.

In it’s most-recent analysis, London-based economic group Capital Economics has sided with the local groups, predicting 2.5% expansion, while Fitch Ratings of New York is more optimistic at 2.8%.

For 2019, the Bogotá-based Fedesarollo has forecast growth at 2.8%, which is again well below the estimates made by major global economic groups. By comparison, the two Washington institutions, IMF and World Bank, have projected 3.6% and 3.4%, respectively, for 2019.

Fedesarrollo also warns that, while improving oil revenue and an outlier windfall from fines helped the federal government hit its “fiscal rule” of keeping the budget deficit to 3.6% of GDP last year, this “is not enough” to ensure the rule is adhered to going forward.

“Compliance with the fiscal goal was achieved in part thanks to extraordinary revenues for the payment of fines from cell phone companies and additional entries for financial returns,” stated the organization. “These resources were able to compensate for the shortfall in tax collection, which stood at 13.8% of GDP and was lower than the target established in the ‘Medium-Term Fiscal Framework of 2017.'”

The group believes the government will hit the 3.1% figure mandated for 2018. But, it says that, “starting in 2019, the fiscal outlook is highly challenging.” This was a sentiment expounded on recently in an analysis by Fitch Ratings, which said that hitting the 2019 goal of 2.2% of GDP will “likely depend largely on reducing spending, which has been steady over the last five years.”

In terms of Colombia’s current account deficit, Fedesarrollo expects it to end 2018 at 3.0% of GDP, an improvement of 0.3 percentage points below its previous estimate. This is under the assumption of a Brent oil price that averages roughly $60 USD per barrel for the year. It added that the account deficit could drop as low as 2.6% of GDP if Brent hovers closer to $65 USD for the remainder of 2018.

“For this year, we expect a dynamic similar to that of the previous year, with which the trade deficit would continue to decline, thus maintaining the adjustment process that has been evident since 2016,” wrote the organization in its analysis.

Finally, even though Fedesarrollo is less optimistic than some other institutions, it did praise the clear recovery for the nation’s economy after two years of sub-2.0% growth. It notes, however, that it’s important to realize that the recovery is not uniform across the nation. Different geographical areas are faring better than others and the same applies for different sectors.

In discussing the final months of 2017 and early returns so far this year, Fedesarrollo stated that, “compared to the results observed at the national level, the Caribbean and the Cali and Valle regions showed a better performance in most of the productive sectors, while Medellín and the coffee sector exhibited a lower dynamic.”

Santander and the center of the country also “presented a slower recovery than the rest of the territories, with an economic dynamic that was below the national results in all sectors.”