Colombia, OECD Economic Outlook, December 2020

142 

Colombia Growth has rebounded in many sectors of the economy, with the notable exception of tourism and entertainment. Unemployment is already starting to see a moderate decline. After a fall of 8¼ per cent in 2020, GDP is projected to rise by 3½ per cent in 2021 and 3¾ per cent in 2022, helped by low interest rates and fiscal stimulus. Inflation will be contained, owing to substantial spare capacity.

Macroeconomic policies have responded to the crisis in a bold and timely manner. Additional healthcare spending, income support to households, wage subsidies and extended credit lines have been facilitated by a temporary suspension of the fiscal rule. Public debt will rise substantially, but will remain manageable under the authorities’ plans, which include higher revenues and spending cuts from 2022. Monetary authorities have provided ample liquidity, with interest rates reduced to record lows. Fostering formal employment through lower payroll taxes will be key to raise productivity and make growth more inclusive.

COVID-19 has hit Colombia hard, but signs of recovery are emerging Colombia has been hit hard by the pandemic. New infections and COVID-19-related deaths peaked in July and August, and have since stabilised at a high level. A nationwide lockdown lasted from late March to early September, and was subsequently replaced by targeted and selective measures. Strong efforts to increase intensive care capacity have alleviated the severe strains on the health system and allocated additional resources to the health sector.

Colombia The recovery is partial and unsteady

The labour market has improved

Index Jan 2020 = 100, s.a.

110

% of working-age population, s.a.

65

% of labour force, s.a.

25

← Employment rate

100

Unemployment rate →

60

20

90 55

15

50

10

45

5

80 Monthly activity index ISE

70

Industrial production Retail sales

60 50

2017

2018

2019

2020

0

40

2017

2018

2019

2020

0

Source: Refinitiv; OECD Main Economic Indicators database; DANE (Colombia); and Banco de la República (Colombia).

StatLink 2 https://doi.org/10.1787/888934218159

OECD ECONOMIC OUTLOOK, VOLUME 2020 ISSUE 2: PRELIMINARY VERSION © OECD 2020

ď ź 143

Colombia: Demand, output and prices 2017

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

Current prices COP trillion

2019

2020

2021

2022

Percentage changes, volume (2015 prices)

920.5 630.6 137.0 200.0 967.6 - 1.1 966.4 139.4 185.4 - 46.0

2.5 3.0 7.0 1.5 3.3 0.1 3.4 0.9 5.8 -1.0

3.3 4.5 4.3 4.3 4.4 -0.1 4.3 2.6 8.1 -1.3

-8.3 -7.6 2.7 -18.6 -8.4 -0.1 -8.5 -18.9 -17.5 0.9

3.5 3.1 3.8 7.9 4.1 0.3 5.1 0.1 7.4 -1.5

3.7 4.0 1.1 6.0 3.9 0.0 3.9 5.6 5.8 -0.5

_ _ _ _ _

4.5 3.2 3.9 9.7 -4.0

4.3 3.5 3.3 10.5 -4.2

1.3 2.5 2.0 16.1 -3.9

3.0 2.4 2.3 14.8 -3.9

3.1 3.0 3.0 13.0 -3.7

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 108 database.

StatLink 2 https://doi.org/10.1787/888934218178

The relaxation of containment measures has given rise to a gradual recovery Exacerbated by a large share of informal jobs and small businesses, the lockdown, and lower oil prices, took a strong toll on economic activity in the second quarter of 2020. Since late May, a limited relaxation of the lockdown has allowed a rebound in some sectors, as evidenced by increases in activity, retail sales and industrial output. Consumer and business confidence measures have also improved. Sectors that continue to be subdued include entertainment, recreation, retail, transport and accommodation. Despite incipient declines in the unemployment rate, employment remains more than 10% below its January level.

Inflation continues to be well below target.

A strong and timely macroeconomic policy response supported the economy A strong macroeconomic policy response has cushioned the decline in domestic demand and is helping to contain long-term scars from the pandemic. The government provided additional healthcare spending, cash transfers to poor families through existing programmes, a new programme to support informal workers and families not previously covered, payroll subsidies for affected firms and extended credit lines, particularly for small firms. This additional spending of around 3% of GDP was made possible through a temporary suspension of the fiscal rule for 2020 and 2021, and significant fiscal policy support will continue in 2021. Public debt will rise by almost 15 percentage points to above 60% of GDP by 2022. The monetary authorities cut rates by 250 basis points and provided substantial extra liquidity in domestic and foreign currencies, which helped to protect payment systems and stabilise stressed foreign exchange and asset markets.

OECD ECONOMIC OUTLOOK, VOLUME 2020 ISSUE 2: PRELIMINARY VERSION Š OECD 2020

144 

Growth will recover to almost 4% in 2021 and 2022 With substantial contractions in domestic and external demand, output is projected to decline by around 8¼ per cent in 2020. A significant public investment programme, including in infrastructure and publicly-supported housing, will promote the recovery in 2021, when GDP is projected to grow by 3½ per cent. Private consumption will recover only slowly at first, especially in services. A weak external environment will not provide much support in 2021 and 2022. A renewed rise in infection rates, or delays in the availability of a vaccine, could require further restrictions, causing activity to decline again. Failure to implement planned revenue measures and raise public spending efficiency, including through better targeting of public subsidies and the elimination of numerous tax exemptions, could jeopardise future compliance with the fiscal rule and make debt sustainability more challenging. On the external side, Colombia remains vulnerable to adverse developments in already low commodity prices, especially oil. On the upside, better global prospects would allow a faster return to pre-pandemic output levels.

Policy support should continue, while social protection can be improved Fiscal and monetary policies should continue to provide ample support to the economy in 2021. A solid institutional framework and a fairly comfortable starting position in 2019 can keep fiscal risks under control despite higher public debt, provided that fiscal policy returns to compliance with the fiscal rule once the recovery is firming. Monetary policy can equally remain highly accommodative until 2022, as subdued domestic demand and a weak labour market make an earlier resurgence of inflationary pressures unlikely.

Expanding social protection by building on existing well-targeted cash transfer programmes can help to contain the long-term social impact of the pandemic at manageable cost. Improved incentives are needed to promote formal job creation, including through lower payroll taxes and lower costs of registering firms.

Fewer trade barriers and stronger competition could support necessary reallocation processes. This would make the economy more resilient and promote productivity and equality, especially when combined with well-designed professional training programmes.

OECD ECONOMIC OUTLOOK, VOLUME 2020 ISSUE 2: PRELIMINARY VERSION © OECD 2020