The Colombian economy shut down in 2023 amid recession. Behavior that has begun to be seen in recent months in some indicators.
Although the previous year's combined results are not yet known, some analysts They are already preparing their predictions for what is to come in terms of the economy in 2024.
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The BTG Boxwell Colombia Macro Research Group provided estimates on interest rates, inflation and economic activity. All this in a situation that still seems uncertain.
Analysts point to global inflation convergence This will prompt central banks to make cuts in their reference rates. As such, emerging markets are expected to be the first to act and make the most reductions compared to advanced economies.
In a similar vein, it is estimated that the largest economies set the pace of monetary policy changes in terms of timing and magnitude.
“As observed in 2023, the 'hold rates longer' policy adopted by the central banks of advanced economies was finally incorporated by the market, leading to an increase in the expected terminal rates of all countries in the region”, Experts point out. ~
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With recent announcements from the central bank, the possibility of lower terminal rates in Latin America will translate into valuations in fixed income.
Regarding risks, BTG Pactual Colombia's analysis highlights that the global economy Exposure to short and medium term risks Persistent inflation, limits on fiscal stimulus measures, climate shocks and international financial pressures can affect the economic outlook.
World economy iStock
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Local economic activity
Gross Domestic Product (GDP) results for the third quarter of 2023 – This put the indicator in negative territory (-0.3%)– They realized the slow pace at which the economy was growing. According to experts, there are two factors that greatly influence this behavior: tight monetary policy and a decline in domestic confidence.
“These two factors have significantly impacted investment and private consumption has slowed, which we expect to continue in the fourth quarter of 2024 and the first quarter of 2024.”The report states.
Along those lines of thought, BTG Boxual estimates that it expects GDP to contract by 0.3% in the fourth quarter of 2023., indicating a technological slowdown and showing annual growth of 0.7%. As for the labor market, conditions remain stable.
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While this scenario may continue into 2024, a slight recovery is expected from the second quarter driven by a gradual improvement in investment levels. Along with this, the credit announced by the government for the housing sector is likely to have an impact on this activity, which will give a boost to economic growth.
Due to the above, Experts predict that the GDP will be 1.7% in 2024. For 2025, growth should rebound due to the positive effects of the demonetization cycle on private consumption and investment, so growth is estimated at 2.6%.
GDP Photo: iStock
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What's next for inflation?
Given that the Consumer Price Index (CPI) has started to decline at a slower rate than expected, Analysts predict that this slowing trend will continue into 2024, putting inflation at 5% by the end of the year.. As a result, inflation will be higher than the target.
“This forecast is supported by several factors, mainly the weakness of economic activity, which is helping to ease pressures on the demand side.” They point out. Added to this is the impact that the El Nino phenomenon can have.
For 2023, Projections 9.5%Still high, but below 13.12% in 2022.
As for 2025, barring unexpected shocks, inflation is expected to finally reach the high end of the target range in March of that year. From there, GDP should decline gradually throughout the year to 3.07%.
inflammation iStock
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The outlook is that the RBI will remain cautious on inflation. This takes into account that the issuer has already started the liquidity cycle, It carries interest rates ranging from 13.25% to 13%.
This year, BTG Pactual expects PanRep to follow a prudent approach through a cycle of gradual cuts, with particular caution in initial cuts. As for the first quarter, this activity will be driven by the seasonality of inflation in the first quarter of the year, which is significant and Impact of El Nino on CPI for this period.
By the same token, the experience of other countries in the region that are more advanced in cut cycles shows that high interest rates in the US are another factor to take into account when choosing the size of cuts. .
“Cutting the monetary policy rate too quickly would expose the local currency to significant depreciation and put pressure on inflation through the exchange. As a result, we do not expect the PANREP to cut the rate too quickly given the high interest rates in the US. Monetary Policy”Highlights.
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This way, Experts expect cuts to be no more than 25 basis points in the first quarter of 2024It may have accelerated by 100 basis points per meeting in the last quarter, taking the benchmark rate to 7.75% by the end of the year.
Additionally, they highlight that as inflation reaches the target range in 2025, cuts should continue until it reaches 5.25% in April of that year. This terminal interest rate is consistent with an estimate of the long-run equilibrium real interest rate of 2.5%.
Summary
