IMF Projects Colombian GDP to Grow by 3.0% in 2018

In its first economic forecast of 2018, the International Monetary Fund has projected the Colombian economy to grow by 3.0%, a rate in line with the 2.9% prediction issued last week by the World Bank.

This rate is also an improvement from the IMF’s last forecast, in October 2017, when it had projected the Colombian gross domestic product (GDP) to grow by 2.8% in 2018.

If the forecast can be met, it would represent a significant turnaround for the Andean nation, which has been suffering through a slowdown during the past two years with growth of less than 2.0% (an estimated 1.70% in 2017 and 1.96% in 2016.)

“In Colombia, growth has picked up gradually as the negative effects of the large fall in oil prices of 2014-16 fade,” wrote Alejandro Werner, director of the Western Hemisphere for the IMF, in a regional analysis. “Falling inflation has made room for growth-supporting monetary easing. Against a background of improving global growth and rising oil prices, the outlook is for a strengthening of the recovery and continued convergence of inflation to the target.”

Even better news lies ahead, according to the IMF, which released its latest “World Economic Outlook” report during the World Economic Forum Annual Meeting this week in Davos, Switzerland.

In 2019, the IMF projects that the Colombian economy will grow by 3.6%, a rate not achieved by the country since 2014 when the price of oil plummeted suddenly and the Colombian peso lost around a third of its value over the subsequent 12 months.

“Medium-term growth prospects are favorable, helped by export growth and infrastructure investment,” wrote Werner.

Regional Recovery

The IMF believes that several other Latin American countries will join Colombia in a wider recovery for the region, which it expects to grow by 1.9% in 2017 and 2.6% in 2019. While these figures remain modest compared to earlier in the decade when commodities were booming, they represent a significant turnaround from the 1.3% growth of 2017 and the recession, with a -0.7 contraction, seen in 2016.

Ongoing progress for Brazil, by the largest economy in the region, is the key driver. According to the IMF, it will see its GDP grow by 1.9% in 2018 — following 1.1% growth estimated in 2017 and a massive 3.5% contraction during the 2016 recession.

For now, the IMF is also projecting that Mexico, while mired in the uncertainty of ongoing NAFTA discussion with the United States and Canada, will also show incremental improvement with 2.3% growth in 2018 and 3.0% in 2019.

Chile is projected to match Colombia’s improvement, from 1.7% in 2017 to 3.0% in 2018, while Peru is expected to lead all large Latin American economies with 4.0% expansion in 2018 (and the same rate again in 2019).

Argentina and Ecuador are the only two large economies expected to backslide. While the overall recovery will continue in Argentina — which endured a 2.2% contraction during the recession in 2016 — it is only projected to grow by 2.5% in 2018, down slightly from the 2.8% estimate for 2017. Ecuador will grow by 2.2% in 2018, down from the estimated 2017 rate of 2.7%.

Risks Remain to Regional Progress

While the region is generally poised for growth, Werner and the IMF warn that challenges remain for the longer-term and several risks, notably the many elections looming in the region this year, could disrupt expectations.

“Several risks could hurt the region’s recovery,” wrote Werner. “Upcoming elections in many countries creates economic and policy uncertainties in the next year. Pressures for inward-looking policies in advanced economies — including through a retreat from cross-border integration — and factors such as global geopolitical tensions and extreme weather events could compound these uncertainties.”

Moreover, while the entire global economic outlook for 2018 remains positive, factors beyond the control of anyone in Latin America could weigh on the potential for growth.

“Financial market conditions could tighten if inflation increases more than expected in the United States or if global financial vulnerabilities build up due to excessive risk taking during the long-lasting period of very low interest rates and low asset price volatility,” wrote Werner.