Following a volatile first half of 2021, Colombia will return to an accelerated recovery trajectory bolstered by expanded social spending, robust consumer demand, reduced restrictions, and the strong reactivation of key sectors like manufacturing and retail. In 2022, growth will moderate but remain strong as the economy expands. Social spending and infrastructure investment continue to bolster the economy as the labor market and lagging industries recover to pre-pandemic levels. Colombia’s election in 2022 will raise political risks and uncertainty, while temporarily slowing the recovery of investment and consumption.

However, we expect general continuity in Colombia’s economic policies following the victory of a centrist candidate, which will enable the continued recovery of the economy. Nonetheless, there is a high potential for a more disruptive shift in Colombia’s economic policies under leftist populist Gustavo Petro, which stands to significantly dampen growth in 2022 and merits rigorous contingency planning by firms if he wins Colombia’s election.

Our analysts are constantly evaluating changing market trends to ensure you have the most updated and relevant information for your strategic decisions. Keep reading for our analysis of the key trends in Colombia that you need to pay attention to.

Colombia faces increased downside risks in 2022 due largely to potential electoral shifts

Increased social spending and a less severe impact from social unrest raise our forecasts for GDP growth in Colombia once again, from 5.6% YOY in 2021 to 8.1%, surpassing pre-pandemic levels of GDP. In 2022, we expect still-strong growth amid electoral uncertainty, as many industries continue to rebound from the pandemic and government stimulus remains elevated. Our downside scenario remains lower given the risk to the recovery posed by a potential victory by populist candidate Petro in Colombia’s election.

Q2 brought notable declines, but normalizing conditions in June set up 2022 for a strong rebound

Q2 disruptions, particularly social unrest, had a substantial impact on multiple industries, particularly manufacturing, construction, and retail. However, these disruptions dissipated quickly, with economic activity and retail sales seeing strong rebounds in June. New social spending and stimulus will boost growth in 2021 and 2022, as recoveries in private sector investment and lagging industries—such as construction, tourism, and hospitality—will continue to drive economic activity in 2022.

Following a watered-down tax reform, Colombia’s fiscal deficit will remain above 4% until 2024

The government’s new fiscal plan reveals lower expectations for reducing the country’s fiscal deficit under the newly adopted tax reform. The failure of the government’s original tax reform amid social unrest gave way to a watered-down reform that expands social spending and lowers prospects for new tax revenue. As a result, the next government will have to pursue a new reform in order to support fiscal balance, likely in 2023. Until then, Colombia will also remain at increased vulnerability to unexpected shocks that could further deteriorate fiscal balance.

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