Colombia’s government will have two main challenges: ensuring the vaccination rollout is effective and lifts COVID-19 restrictions, as well as tackling the fiscal impact of the pandemic while managing social tensions. While we expect to see Colombia’s recovery momentum stall in the first half of 2021 due to slow vaccine rollouts and continued targeted lockdowns, we anticipate an acceleration later in the year.

While the Iván Duque administration’s openness to delaying a much-needed tax reform may lessen the risks of social unrest, it will impact Colombia’s fiscal credibility, putting the country’s investment grade at risk. Companies should continue to monitor the vaccine rollout progress to gauge the timeline for normalization of economic activity and the government’s statements on tax reform, as significant uncertainty lingers.

Economic activity will not return to pre-COVID-19 levels until early 2023. While Colombia will experience a 4.2% rebound in 2021, firms should prepare for a slow recovery in 2021 as local governments are forced to continue implementing targeted restrictions amid delays in the vaccine rollout. While economic activity is likely to rally later in the year as more COVID-19 restrictions are lifted, firms should ensure short-term flexibility and remain agile to adapt to the highly uncertain environment.

Despite steep falls, construction, manufacturing, and retail will recovery fastest, with leisure lagging. We expect different industries to recover at varying paces. The retail sector exhibited a steady recovery last year, yet non-durables lagged as certain durable goods soared. While agriculture, financial services, IT, and telecoms are likely to remain resilient, hospitality, tourism, and leisure will take years to recover to pre-pandemic levels. While construction suffered a significant hit in 2020, growth is likely to accelerate in this sector given increased government investment in civil works projects.

Colombia will need to balance economic reactivation spending with severe fiscal constraints. After reaching record-high debt levels in 2020 to finance its fiscal gap, Colombia will need to shift strategies toward boosting government revenues to protect its fiscal credibility and outlook. While the government was expected to present a tax reform largely centered on boosting VAT tax collection early this year, delays are possible given significant popular pushback. Firms should ensure their government relations team is actively tracking and engaging with officials to ensure their interests are represented if a tax reform is pursued.

Actions for Business Professionals

  • Realign your customer segments to account for different paces of market recovery across industry verticals and income segments.
  • Continue to invest in remote solutions for customer and employee engagement, as it is likely that working from home will continue until the country sees higher vaccination numbers, or beyond the pandemic for some.
  • Ensure that your contingency plans are agile, as market volatility is likely to endure, particularly during the first half of this year.

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