Colombia Situation. June 2025

Summary

Colombia’s economy gains traction through consumption and easing interest rates, while investment gradually recovers. Inflation is declining, yet fiscal risks persist. Global uncertainty—with trade and financial tensions—adds pressure. Moderate growth is forecast for 2025 and 2026.

Key points

• Key points:
• Private consumption remains the main driver of the economy, with durable goods and services showing solid momentum. Public consumption is also contributing, thanks to increased regional spending execution, which helps sustain domestic demand.
• Investment in machinery and equipment is advancing due to high capacity utilization, though construction and housing remain sluggish. These are expected to improve in 2026 with more civil works, business infrastructure projects, and a rebound in building activity.
• Inflation continues to ease and is projected to end at 4.7% in 2025 and 3.8% in 2026, supported by lower food prices and softer consumption. The central bank is proceeding cautiously with rate cuts, which remain contractionary in real terms.
• The fiscal deficit remains high due to rigid expenditures and a rise in revenues that falls short. This increases the risk premium and the cost of debt, weakens monetary policy effectiveness, and adds pressure on financial variables. The current account will widen, though it starts from low levels, and will continue to benefit from income via remittances and tourism, while financing remains supported by foreign direct investment. The exchange rate will stay under pressure due to fiscal deterioration, reduced oil revenues, and the normalization of terms of trade.
• Colombia faces structural challenges such as low productivity, insufficient infrastructure, and weak integration into global value chains. In the short term, fiscal pressure, adverse financial conditions, and regulatory uncertainty complicate the outlook. Without reforms that boost investment, labor skills, and competitiveness, the country's growth potential will remain constrained.

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