107
Colombia Economic growth is projected to remain robust in the coming two years, despite external headwinds. Investment will be a key driver of growth, aided by tax reforms and ambitious infrastructure projects. Low interest rates will support consumption, while unemployment will start falling. High inequality and informality will remain major policy challenges. The mildly accommodative monetary policy stance is appropriate, with inflation expectations close to target and still high unemployment. Fiscal policy will need to consolidate to reduce the deficit gradually in line with the fiscal rule. Boosting productivity requires stronger competition and increased openness to trade. A better targeting of social policies and reforms to boost job quality and reduce informality would allow for more widespread sharing of the benefits of growth. Consumption and investment are driving growth Economic growth has risen, fostered by strong domestic demand driven by improving credit markets and a positive response from companies to the tax incentives granted in a recent tax reform. The current account deficit has widened, as imports are rising while export performance remains weak. Unemployment has increased despite stronger growth, as employment creation remains too feeble to accommodate the labour force increase due to immigration. Inflation has increased in 2019, driven mainly by increases in food prices and a moderate effect of the peso depreciation, but it remains within the target range.
Colombia Robust investment is driving growth
Inflation remains contained
Contributions to real GDP growth % Pts 10
Y-o-y % changes 9
Real GDP growth
8
Headline inflation
Private consumption
Core inflation¹
8
Government consumption
Inflation expectations²
7
Investment
6
6
Net exports
5
4
4 2
3 Inflation target range
2
0 -2
1 2010
2012
2014
2016
2018
2020
0
0
2015
2016
2017
2018
2019
0
1. Core inflation excludes primary food, utilities and fuel. 2. Inflation expectations are defined as the 12-month ahead inflation expectations. Source: Banco de la República; and OECD Economic Outlook 106 database. StatLink 2 https://doi.org/10.1787/888934045202
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019
108 ECO/CPE(2019)12
Colombia: Demand, output and prices
2016
2017
Current prices COP trillion
Colombia GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1
2018
2019
2020
2021
Percentage changes, volume (2015 prices)
863.8 596.5 125.6 191.2 913.3 9.0 922.2 127.1 185.6 - 58.5
1.4 2.1 3.8 1.9 2.3 -1.2 1.2 2.5 1.2 0.1
2.6 3.6 5.6 1.5 3.5 0.4 3.9 3.9 7.9 -1.0
3.4 4.7 2.9 4.6 4.4 0.3 4.6 4.0 8.8 -1.2
3.5 3.9 3.5 5.3 4.1 0.1 4.2 4.0 5.5 -0.6
3.3 3.5 3.1 4.5 3.7 0.0 3.7 3.3 3.6 -0.3
_ _ _ _ _
5.1 4.3 4.9 9.4 -3.3
3.7 3.2 2.9 9.7 -4.0
4.1 3.5 2.9 10.1 -4.2
3.5 3.6 3.3 9.2 -4.2
3.3 3.0 3.0 9.0 -4.2
Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force) Current account balance (% of GDP) 1. Contributions to changes in real GDP, actual amount in the first column. 2. Consumer price index excluding primary food, utilities and fuels. Source: OECD Economic Outlook 106 database.
StatLink 2 https://doi.org/10.1787/888934046266
Further structural reforms are needed to boost inclusive growth Fiscal policy needs to consolidate to reduce the central government’s structural deficit to 1% of GDP, in line with the fiscal rule, and to stabilise the public debt-to-GDP ratio. The tax reform going through congress will boost investment. But further measures to raise revenues are likely to be needed in the medium term to meet the fiscal rule and the necessary social and public investment expenditures. It is essential to boost tax revenues in a sustainable manner, while at the same time achieving a tax system more favourable to growth and equity. This could be attained by broadening the bases of personal taxes and VAT, and reducing the corporate income tax rate and eliminating its numerous tax exemptions. To increase revenues, environmental taxes and tax administration efficiency could be boosted. Stronger and more inclusive growth requires boosting productivity through structural reforms. Raising competition, improving port and customs logistics, and reducing trade and non-trade barriers and regulatory burdens would increase exports, make firms more productive and create quality jobs. The large inflow of migrants can help to boost potential growth, which has fallen in recent years due to lacklustre productivity. However, this requires continuing with the integration policies that help absorb migrants in the formal labour market, as well as investment in training and healthcare systems. To ensure that the benefits of growth are more widely shared by all, a comprehensive strategy is needed to foster the creation of formal high-quality jobs. This requires reforms in various areas, such as reducing non-wage labour costs, reviewing the minimum wage system to achieve more job-friendly outcomes, improving the quality and relevance of education and training, and adopting measures to integrate more women into the labour market. Reforming the pension system is urgent to reduce old-age poverty and inequality.
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019
ď ź 109
Growth is projected to stay robust Growth is set to remain strong, supported by higher domestic demand. Investment will be a key driver of growth, aided by a lower tax burden and ambitious infrastructure projects. Still low interest rates, inflation within the target of the central bank, and decreasing unemployment will support consumption. The current account deficit will widen in the context of demand-driven growth and weaker export performance. Upside risks include higher oil prices, which could boost investment further. Downside risks include stronger-thananticipated weakness in the external environment, driven by trade tensions and regional instability, and additional delays in infrastructure projects.
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019