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Colombian economy 62

Colombia’s gross domestic product (“PIB” in Spanish initials) is likely to grow by 4.5% during 2021 -- up sharply from the 6.8% GDP net decline during the Covid-19 crisis of 2020, according to a just-released monthly survey of economists by Fedesarrollo, Colombia’s top economic think-tank.

According to the organization’s latest “Financial Opinion Survey” (FOS) for February 2021, Colombian economic growth for 2021 is now seen by most economists at 4.5%, with opinions ranging between 3.9% and 4.8%.

Other survey highlights:

Interest rates: Since the Colombian Central Bank (Banco de la Republica) set monetary policy interest rates at 1.75% during January 2021, “66% of the [economists] foresee an unchanged interest rate (1.75%) and 6.4% expect a reduction of 25-bps [basis points]” for the remainder of 2021.

Among those surveyed, 19% expect an increase of 25-bps, while 2.1% foresee a rate under 1%. Another 2.1% expect an increase to 2.25%, and the remaining 4.3% of those surveyed expect a 2.5% interest rate by the end of 2021, according to the survey.

Inflation: In January 2021, the annual inflation reached 1.6%, lower than the analysts forecast. In February, the analysts believe that inflation will be 1.5% , while inflation expectations for the end of 2021 are at 2.58%.

COP/U.S. Dollar Exchange Rate: In January, the exchange rate closed at COP$3,559.46 to the U.S. dollar, with a monthly appreciation of 3.69%.
According to the survey, “the exchange rate forecast by the end of [February] ranges between $3,450 and $3,550, with $3,510 as median response. The exchange rate forecast for the end of 2021 is COP$3,450, ranging between $3,400 and $3,530.

“Finally, the exchange rate forecast for next three months ranges between $3,400 and $3,550, with $3,475 as median response,” according to Fedesarrollo.

Colombia Treasury Bond Trading: In January, the traded volume of the Colombian treasury bonds reached COP$47.4 trillion (US$13 billion), up 183% from December 2020.

Now, 57% of analysts surveyed believe that T-Bill interest rates will range from 3.0% to 3.25% during the next three months, while 27% believe that the rate will be between 3.25% and 3.5% and the remaining 6.4% of those surveyed expect a rate over 3.5%.

“Regarding TES bonds maturing in 2028, none of the analysts considers that the rate will be under 4.5% during the next three months, while 29.8% consider it will be between 4.5% and 4.8%. The percentage of analysts who expect that the rate will be between 4.8% and 5.2% during the next three months was 66%. Finally, 4.3% expect a rate higher than 5.2%,” according to the survey.

Investment Determinants: “Economic growth continues ranking as the most important aspect considered for investing decisions, reaching 45.65%” of those surveyed.

“Fiscal policy and external factors placed second and third place, respectively. Concerns accounting for fiscal policy reached 28.26% (up from 20.9% in the previous month), while external factors reached 10.87% (down from 11.6% in the previous month),” according to the survey.

“Other factors” took fourth place, with the rate of Covid vaccinations being the main reason for “other factors.”

“Monetary policy, sociopolitical conditions and security conditions were the least in the investment determinants with 4.35%, 2.17% and 0.0% respectively,” according to the survey.

Investment preferences: Compared to January 2021, in Februrary 2021 “portfolio managers increased their preferences for private debt indexed to the CPI, foreign stock, private equity funds, international bonds, fixed rate private debt and cash,” according to the survey.

Colombia’s “Colcap” stock index: In February, 76.6% of the analysts (84.1% in January) expect a Colcap valuation [rise] during the next three months,while 19.1% of the analysts expect the index to devaluate and 4.3% to remain the same,” the survey found.


Colombia’s national economic statistical agency DANE on February 15 revealed that the national gross domestic product (PIB in Spanish initials) shrunk by 6.8% for full-year 2020 -- all because of the Covid-19 crisis.

However, GDP sequentially rebounded in third quarter (3Q) and fourth quarter (4Q) 2020, compared to the huge 15% decline in second quarter (2Q) 2020, the DANE report shows.

According to DANE, the economic sectors that contributed the most to the 2020 GDP decline were wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; construction; mining; lodging; and food services.

Commenting on the DANE report, Bruce MacMaster, president of ANDI (Colombia’s biggest industrial-commercial trade association), said: “We can see that in the [sequential] inter-quarter growth data, the economy presented an expansion of 9.4% in the third quarter compared to the second, and 6% in the fourth quarter compared to the third, which accounts for an important correction, accompanied by the lifting of the strictest quarantines since June.

“The indicators for the end of the year 2020 show us trends that suggest that we will reach positive data in the near future. The reactivation, accompanied by the vaccination process, puts Colombia in a more positive outlook,” he added.


Colombia’s national economic statistics agency (Departamento Administrativo Nacional Estadistica, DANE) announced November 17 that third quarter (3Q) gross domestic product (“PIB” in Spanish initials) rebounded by 8.7% over second quarter (2Q) 2020.

While the sharp increase in GDP in the latest quarter is an encouraging sign, 3Q 2020 GDP is nevertheless down by 9% compared to 3Q 2019 -- all because of the drastic shutdowns and cutbacks this year resulting from the Covid-19 pandemic.

Comparing 3Q 2020 with 3Q 2019, wholesale and retail sectors including motor vehicles, transport, tourism and food services collectively fell by 20% year-on-year, while construction dropped 26%, DANE noted. Mining and quarrying also fell by 19% year-on-year, the agency noted.

Expenditure on final consumption fell 7% year-on-year, while gross capital formation declined 18.3%, exports fell 24.1% and imports declined 21.1%, according to DANE.

On the upside, “compared to the immediately previous quarter, the [3Q 2020] Gross Domestic Product in its series adjusted for seasonal and calendar effects grew 8.7%,” according to DANE.

The big improvements in 3Q 2020 versus 2Q 2020 include the following changes, according to DANE:

• Manufacturing industries grew 23.4%.
• Wholesale and retail; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food services grew by a collective 22.3%.
• Artistic, entertainment and recreational activities and other service activities, together with activities of individual households as employers collectively grew 12.3%.

In addition, 3Q 2020 gains over 2Q 2020 include these bright spots:

• Final consumption expenditure grew by 7.3%.
• Gross capital formation grew by 21.6%.
• Exports grew by 1.9%.
• Imports grew by 13.5%, according to DANE.


Wall Street bond rater Fitch Ratings announced November 6 that Colombia’s gross domestic product (GDP) is likely to rebound to a positive 4.9% in 2021, up from the Coronavirus-caused 6.9% GDP contraction this year.

Meanwhile, bond ratings on Colombian sovereign debt remain at a modest “BBB-” with a continuing negative outlook because of the hangover effects of Coronavirus contractions this year, according to Fitch.

“Colombia’s 'BBB-' rating reflects the government’s long track record of conservative macroeconomic policies that have underpinned macroeconomic and financial stability,” according to Fitch.

“Its ratings are constrained by high commodity dependence, weaker external metrics compared with peers, rising government debt burden and structural weaknesses in terms of low GDP per capita and weaker governance indicators relative to peers.

“The ‘negative’ outlook reflects downside risks to the economic growth outlook and uncertainties about the capacity of the government’s policy response to decisively cut deficits and stabilize and eventually lower debt in the coming years, following the sharp rise in general government debt burden as a result of the Coronavirus pandemic.

Beyond the 4.9% GDP rebound in 2021, “Fitch projects growth of 3.8% in 2022, above the estimated medium-term growth potential of about 3.0% as a result of the large output gap that has emerged,” according to the company.

Fiscal deficit is forecast to rise to 9.1% of GDP in 2020 “due to the sharp fall in revenues and higher spending to combat the pandemic as well as economic reactivation measures,” the Wall Street analyst adds.

“The deficit is expected to gradually diminish to 7.5% in 2021 and 4.9% in 2022. The government suspended its fiscal rule for two years to combat the pandemic and reactivate the economy with increases in spending in both years.

“Although Fitch expects revenues to increase in 2021 given the cyclical economic rebound, income taxes and oil revenues will likely underperform the budget targets given lagged effects of 2020 economic activity and drop in oil prices,” the company added.

Tax revenues would rise by around 2% of GDP in 2022-2024 “due to implementation of a tax reform,” but “budget deficit reduction in 2022 will depend on the government's ability to pass revenue-enhancing measures given the spending rigidities which regional transfers and other nondiscretionary social spending impose,” according to Fitch.

Government budget deficits this year largely tapped foreign finance, “including the planned use of US$5.3 billion from the IMF [International Montetary Fund] Flexible Credit Line,” according to Fitch.

Foreign direct investment has covered around 70% of Colombia’s current-account deficit in the last decade, “where it is expected to remain over the medium term.”

“Net external debt is expected to rise to 18.4% of GDP in 2020 -- surpassing the current BBB median of 10.2% -- up from 12.1% of GDP in 2019,” according to Fitch.

“International reserves have risen in 2020 to US$57 billion, from US$52.7 billion in 2019, improving external liquidity measures (10 months of current account payments, up from 7.6 months in 2019).

“Colombia's floating [peso-to-dollar exchange] regime and the IMF's Flexible Credit Line (augmented to US$17.2 billion in September 2020) help mitigate external vulnerabilities,” the analyst concluded.

President Duque Congratulates President-Elect Biden

Meanwhile, Colombia President Ivan Duque on November 8 congratulated incoming U.S. President-elect Joe Biden and incoming Vice President-elect Kamala Harris.

Duque noted that long before the election of new President Biden, “when he was a member of Congress, [Biden] supported the initiative that was Plan Colombia, and has maintained a very close relationship with our country.

“With [former U.S.] President Bill Clinton we made the leap [expanding] Plan Colombia. With President George Bush we made progress not only on security issues, but also on trade issues.

“During the administration of President Obama, very important issues regarding the relationship with Colombia were also explored. And I also want to emphasize that with the administration of President Trump we have had a very good and fruitful relationship on security issues, the fight against drug trafficking, trade, innovation, and we have recently signed what is known as 'Colombia Crece,’ a program which is a new version, a new update of what was Plan Colombia at the time,” Duque concluded.

Wall Street Soars on Biden Election, Covid-19 Vaccine News

Meanwhile, on top of the new, encouraging outlooks for Colombia and continuing good relations with the U.S. -- its number-one investment and trading partner --  major U.S. and European stock indexes skyrocketed today (November 9) on news of President Biden’s victory over Donald Trump, along with news from U.S. drug maker Pfizer and its German biotech development partner BioNTech announcing a 90% effectiveness for a new Covid-19 vaccine.


ANDI -- Colombia’s biggest industrial-commercial trade association -- announced July 8 that its most recent survey of 200 major companies shows that business liquidity is starting to improve thanks to the gradual reopening of various economic sectors during the current Covid-19 crisis.

During the height of the national quarantine and business shutdowns in April, surveyed companies had (on average) only 11 days of cash-on-hand to cover salaries, benefits, suppliers, taxes, overhead and outstanding loans, ANDI noted.

But thanks to subsequent, government-authorized exemptions to quarantines – paired with strict biosafety protocols – cash-on-hand doubled to 23 days in May and tripled to 35 days in June, the survey found.

“Government measures and the resumption of activities and operations have given companies oxygen,” said ANDI president Bruce MacMaster. “However, this liquidity survey shows that companies face a difficult situation. There are companies in big problems that require great support and even rescue plans,” he added.

The big improvements in liquidity seen in the latest survey “can be explained by several factors: a greater number of productive activities in operation, the reactivation of production chains and not only in isolated sectors, the rationalization of costs within companies, aid provided by the financial sector (grace periods, extensions, among others), national government measures such as the day without VAT [sales tax] and aid such as the payroll and ‘prima’ [mid-year worker bonus] subsidy, among others,” according to ANDI.

“As we have noted in previous versions of the survey, the situation in the business sector is not homogeneous. On the one hand, we find companies with a situation of marked illiquidity. This is the case of 20.6% of the companies surveyed, where cash-on-hand only covers between one and eight days to operate.

“Then there are another 10.8% of companies with between nine and 15 days [liquidity] and 26.3% between 16 and 30 days. Thus, 57.7% have cash to operate for a month or less.”

The survey also found that operating income declined for 72.8% of companies in May 2020 versus May 2019, while 20.4% of companies saw a year-on-year increase and 6.8% reported no change, according to ANDI.


Colombia’s national economic statistics agency (DANE) announced June 30 that the Covid-19 crisis -- now starting its fifth month -- predictably has caused massive unemployment nationally as well as locally as a result of quarantines and strict biosafety controls.

According to the latest DANE bulletin, the Colombia national unemployment rate skyrocketed to 21.4% in May 2020 -- more than double the 10.5% unemployment rate in May 2019.

Medellin similarly saw its unemployment rate soar to 21.6% in May 2020, versus 12.4% in May 2019, DANE found.

The worst-hit city is Neiva at 32.8% unemployment, followed by Ibague (31.7%); Armenia (30.4%); Popayan (29.7%); Riohacha (29.3%); Cucuta (29.2%); and Florencia (27%).

Cali unemployment hit 23%; Bogota 19.2% and Cartagena 16% in May 2020, according to DANE.

In total, 4.9 million Colombians lost their jobs in May 2020, while the 13 biggest cities saw employment numbers drop by 2.4 million year-on-year, according to DANE.

Commercial trades and vehicle repair sectors were worst hit, followed by manufacturing, according to DANE.

Recent gradual reopenings of many economic sectors are likely to stem further losses in 2020. However, major employers including restaurants, airlines/airports, inter-city buses, hotels and tourism continue to suffer massive employment losses, with future reopenings still uncertain.

While the Medellin metro area has begun a few “pilot” restaurant reopenings this week, airport/airline restarts at both Olaya Herrera (downtown, national flights) and Rionegro (international and national flights) are still banned as mayors in the metro area have NOT unanimously agreed-upon any reopenings -- not even “pilot” test routes.

IMF Sees Colombia GDP Growing 4% in 2021

Meanwhile, the International Monetary Fund (IMF) just updated its latest gross domestic product (PIB in Spanish initials) outlook for Colombia, seeing a 7.8% net decline in PIB this year but a 4% positive growth in PIB in 2021 -- a significant rebound.


Colombia’s economic statistics agency (Departamento Administrativo Nacional de Estadística, DANE) announced May 15 that the Covid-19 crisis -- bursting on the scene in the latter part of first quarter (1Q) 2020 -- took a big bite out of gross domestic product (“PIB” in Spanish initials).

As a result, Colombia PIB grew by just 1.1% in 1Q 2020, down from 2.9% growth in 1Q 2019, according to DANE.

The best-performing economic activities in 1Q 2020 were agriculture, livestock, forestry and fishing (up 6.8%); followed by public administration, defense, compulsory contributions to social security plans, education and health care (up 3.4%); and finally real-estate activites (up 2.6%), according to DANE.

However, the worst-performing sectors were construction (down 11.4%); manufacturing industries (down 4.5%); and home-based businesses (down 3.9%), according to DANE.

During 1Q 2020, consumption expenditures rose 3.7% year-on-year, but gross capital formation declined by 6.7%; exports fell 6.1%; and imports declined 2.5%, according to DANE.


Wall Street bond rater Fitch Ratings on May 14 unveiled a report finding that Colombia will struggle to fill a fiscal hole next year because of economic damage and revenue losses in the Coronavirus crisis -- along with continuing pressures to boost social spending.

In the current crisis, the Colombian government has been spending billions of dollars in subsidies for hospitals and poorer patients, for health-care workers, for millions of private-sector workers, for indigent families -- and simultaneously helping to restore liquidity for micro-, small, medium and larger businesses during the Covid-19 quarantine shutdowns.

“Further reductions to our growth forecasts for Colombia (BBB-/Negative rating) due to the Coronavirus pandemic will mean faster increases in budget deficits and public debt this year,” the Fitch report warns.

“For Colombia, we forecast a [2020 GDP] contraction of 4.5%, compared with negative 2% previously. [These] revisions reflect the extension of domestic lockdown measures with a large impact on consumption and investment as well as the Coronavirus pandemic’s broader effects on lower commodity prices, higher funding costs and capital outflows . . .

“In Colombia, the likely fall in oil production will also hit growth [while] deep recession magnifies fiscal deterioration. We forecast Colombia’s central government deficit to rise to 7% compared with our previous forecast of 5.5%.

“Colombia’s debt-to-GDP ratio will rise to 55%, up more than and 10 percentage points from 2019.

“The Colombian government recently announced further support measures including wage subsidies for some companies and deferring income tax payments until December, as well as increasing fiscal stimulus spending to 2.4% of GDP, from 1.4%,” Fitch noted.

In addition, Colombia’s central bank has “lowered policy rates and provided liquidity to credit markets through bond-buying programs among other measures. Lack of fiscal consolidation that allows government debt to continue rising is a negative rating sensitivity for sovereign [debt],” the rating agency added.

“Colombia’s finance minister has mentioned possible tax reform next year . . .However, continuing deterioration in near-term economic and fiscal prospects increases the importance of formulating credible medium-term plans, including fiscal reforms on the revenue or expenditure sides, to sustainably restore growth and stabilize debt.

“Failure to address the risk of lasting economic damage stemming from the current crisis would intensify pressure on the rating.

“Weaker growth prospects would adversely affect debt dynamics and could exacerbate social tensions, in Fitch’s view.

“Colombia faces challenges raising tax revenues over the medium term, especially given the expected loss of oil-related revenues worth over 1% of GDP in 2021 and reduced tax revenues due to the 2019 Economic Growth Law.”

What’s more, Colombia faces “social and political pressures to increase pension, healthcare and education spending, highlighted by protests between October and November 2019.

“Elections in May 2022 in Colombia may narrow the window of opportunity for reforms,” the company added.

Bancolombia Analysis

On a parallel front, Medellin-based banking giant Bancolombia issued a new report analyzing the impact of the gradual reopening of the Colombian economy during the Covid-19 crisis.

“In the first phase of compulsory isolation, between March 20 and April 26, the Colombian productive apparatus had an effective operating percentage of 65%,” the report found.

“This [productive-sector operational] figure increased to 77% in the second phase, from April 27 to May 10.

“In the first phase and second phase of quarantine, the economy would have stopped producing around COP$900 billion [US$230 million] and COP$600 billion [US$153 million] per day.

“Since May 11, the operating percentage would have risen to 82% and the new daily cost would drop to COP$460 billion [US$117 million].

“The gradual reopening of some productive sectors can reduce the economic cost of quarantine by about COP$10 trillion [US$2.55 billion],” Bancolombia found.

“The aforementioned [analysis] led to the estimated annual variation in productive activity [GDP growth] going from 2.7% in the quarter ending in March to almost -10% towards mid-April, when it bottomed out.

“In the second half of April and the first days of May, the decrease has moderated to -7.6%. As a result, we calculate that the total cost of mandatory quarantine [through May 11] can be COP$48 trillion [US$12.2 billion].

“Therefore, it is shown that the safe operation of more productive sectors can mitigate the significant economic effect that the Covid-19 [quarantine] brings,” Bancolombia concluded.


In yet another effort to shore-up Coronavirus-crisis business liquidity, President Ivan Duque and Finance Minister Alberto Carrasquilla unveiled May 6 two new programs for payroll subsidies as well as income-tax-payment deadline delays.

Under the latest “declaration of economic emergency,” all employees of micro, small, medium and large companies here that have suffered sales declines of at least 20% in April 2020 (versus April 2019) will each get a COP$350,000 (US$90) direct transfer from the government for the next three months.

That payment – estimated to benefit some 6 million Colombia workers -- is equivalent to 40% of the current Colombia minimum wage, President Duque explained.

In addition, the government will postpone the second regular payment of corporate income tax (normally at end-May) to end-2020, helping companies conserve cash to meet payroll and other expenses.

Finance Minister Carrasquilla added that the new worker/business subsidies -- totaling about COP$6 trillion/US$1.5 billion) -- come on top of other Coronavirus-crisis programs that have already enabled companies to restructure on more-favorable terms outstanding loans equivalent to nearly COP$150 trillion (US$38 billion), helping to save millions of jobs.

“Of course, we would like to finance the entirety of payroll [of Cornavirus-slammed companies], but we don’t have enough money for that,” Carrasquilla explained, citing fiscal limits.

Nevertheless, the new program will cover “a very significant percentage of payrolls for the next three months,” especially for micro, small and medium-sized businesses, he added.

To qualify for these grants, companies will have to document through an auditor or accountant their actual payrolls -- and prove payment to workers each month via the mandatory “PILA” employee-benefits platform here, he added.

As for the income-tax payment delays, “companies that do not have cash can hardly pay those taxes, and if they fall into default they generate [bigger] problems later, which we want to avoid,” Carrasquilla added.

Medellin Chamber of Commerce Proposals

Meanwhile, in a new presentation to a Medellin Chamber of Commerce for Antioquia (MCCA) economic-outlook forum, former Inter-American Development Bank chief economist Eduardo Lora explained that a huge challenge facing not just Medellin but also Colombia is to generate more formal, tax-paying and benefits-generating employment -- in the wake of Coranavirus crisis.

Colombia needs to generate at least 4 million more formal-sector jobs quickly, MCCA quoted Lora as saying. Such a development not only would improve living conditions for workers but also would shore-up Colombia’s tenuous fiscal situation by generating tax revenues.

However, the Coronavirus crisis instead is causing just the opposite, as millions of people lose income -- and temporarily lose jobs -- while about 10 million more people here are working fewer hours. “These are huge numbers like never before,” Lora said.

To get Colombia back on track, Lora proposed that the government temporarily subsidize formal employment via a mix of policies that would reduce unemployment and stimulate demand.

Beyond that, tax reform is needed to “define how the debts we have today are paid in the future,” he said. What’s more, cities need to think more profoundly about the total impact of promoting telecommuting and teleworking -- as is now mandated during the current crisis for office employees.

While Lora added that Colombia is unlikey to see a return to the growth rates of 2019 before 2023 or 2024, former Commerce Minister Jorge Humberto Botero added in a separate presentation here that the Colombian economy could contract by 5.5% this year -- worse than the 4.5% contraction in the 1999 economic crisis.

In another presentation, Universidad de los Andes professor Sergio Clavijo predicted that Colombia GDP growth in the first quarter of 2020 might be around 2%, but would fall into negative territory for full-year 2020.

Beyond coping with the current crisis, government also needs a longer-term refocus on converting some 9 million Colombians in the informal sector to the formal jobs sector, Clavijo added.

At the same forum, former Colombia Agriculture Minister Juan Camilo Restrepo added that the Coronavirus crisis currently is estimated as costing Colombia at least COP$53 trillion (US$13.5 billion).

To recoup fiscal losses that accompany such economic crises, government can’t just raise taxes, since that would kill even more tax-paying business and hence kill more tax-paying jobs, he said.

Instead, “everything points to the fact that the government is going to have to [recoup losses] by borrowing more and raising the public debt,” hence postponing fiscal balance recovery into future years.


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About Medellin Herald

Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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