Central Bank Downgrades Forecast for Colombia’s 2016 GDP Growth to 2% and Expects the Same in 2017

In a new, pessimistic forecast, Colombia’s central bank today downgraded its expectations for economic growth this year from 2.3% to 2.0%. This represents the most likely scenario within a larger range of 1.5% to 2.5%.

The Banco de la República in Bogotá also forecasted that the nation’s GDP is likely to grow by just 2.0% again in 2017, according to Reuters. This next-year prediction included a range from 1% to 3% with the middle representing the most likely outcome.

“The slowdown in output and lower external imbalance reflect the adjustment required in the Colombian economy due to negative shock to national income that the country has been facing since mid-2014,” said José Darío Uribe, the director of the Banco de la República.

He added that external factors, notably oil prices and slow growth among Colombia’s main economic allies, also make up a component of the lowered projection. “The average growth of trading partners of Colombia has been low and lower than expected, a fact that is reflected in poor performance of the country’s exports,” he said.

This news comes after others have already downgraded their estimate for 2016 growth. In its October world economic update, the International Monetary Fund (IMF) cut its expectation for Colombia’s GDP from 2.5% to 2.2%. The IMF remains more optimistic about a recovery next year, however, with a 3.0% projection for 2017.

Bancolombia, the nation’s largest financial services institution, has put its most recent number at “2.4% with a downside bias.” The low end of its range is 1.8% with a high of 2.7%. For 2017, the Medellín-based bank has its most-likely figure at 2.7%.

Bancolombia is also bullish on the longer-term prospects for Colombia. In a report last month, it said that the nation’s economy has already bottomed out and would begin a turnaround next year that lasts well into the tail end of the decade. “We estimate that the acceleration cycle starting in 2017 will extend over the next two years,” wrote the bank. “Indeed, our baseline scenario assumes that in 2018 the economy would grow 3.4% and in 2019 it’d reach 4.0%.”

This dour outlook represents the effects of what have been back-to-back difficult years for the nation. Colombia’s GDP only grew 3.1% in 2015 after expanding 4.4%, 4.9%, 4.0%, and 6.6% in the preceding four years, according to the IMF.

Low oil prices, inflation hitting a 16-year high, the peso’s devaluation, a 45-day trucker strike this summer, and the rejected peace deal with FARC were the biggest headlines in a 2016 that has continued to underperform expectations.

On the positive side, the central bank did say today that inflation does appear on pace to end the year at 6.1%. While this is still well above the high end of the Banco de la República’s 2% to 4% target range, it is a large recovery from the worst seen this year.

The latest figures, from September, had inflation down to 7.27% after a drop in back-to-back months from the 16-year high of 8.97% recorded in July. The fall had been anticipated by the central bank, and others, but the rate of decline outpaced expectations, suggesting that inflation may be able to fall back to the institution’s 3% target rate by the end of 2017.

“This suggests that the effects of strong temporary supply shocks — El Niño and the nominal depreciation — which diverted inflation target, are beginning to dilute to a higher than expected rate,” said José Darío Uribe. He added that, these shocks, and their effect on spiking inflation, have begun to reverse and that the central bank “expects this trend to continue.”

The inflation figures for October are expected to be revealed next week, and if the trend continues in the right direction then interest rates may begin to be lowered next year. For the time being, the central bank is holding steady at the 7.75 rate that is the result of a 325-basis point raise over 11 straight months of increases.

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