Colombia GDP to grow ‘close to 3%’ in 2025 – central bank

SAO PAULO (ICIS)–The Colombian economy picked up strength at the end of 2024, and higher spending on gross capital formation such as petrochemical-intensive public works and machinery could see “close to 3%” growth in 2025, according to the country’s central bank.

The Banco de la Republica published this week minutes of its monetary policy committee meeting earlier in December which resulted in an interest rate cut of 25-basis points to 9.5%.

In its final assessment of the economy’s performance in 2024, the central bank said inflation was converging towards its target of 3%, but said it will do so “more slowly than projected” on due to a weaker Colombian peso and higher for longer US interest rates.

The rate of inflation in Colombia stood at 5.2% in November, down from 5.41% in October, the fifth month of decline.

The central bank also called on Gustavo Petro’s cabinet to be realistic about public finances and fiscal discipline, and questioned whether fiscal parameters the government had set itself for 2025 will be met.

TO-PREPANDEMIC LEVELS
However, overwhelming sentiment in the minutes was one of optimism about an economy which has a more secure footing in healthier growth, with an increase in gross capital formation a key part of that.

In fact, after sluggish growth posted since the pandemic, next year the Colombian economy could hit some of the indicators in line with those pre-2020.

Economic growth reached 2.0% in Q3, said the bank, driven by a 20.3% jump in gross capital formation. The Economic Tracking Indicator showed 3.1% growth in October.

Gross capital formation measures economy-wide investment in fixed assets plus inventory changes. Fixed assets include infrastructure improvements, machinery and equipment purchases, and construction of buildings like schools, homes, offices, and industrial facilities.

“They [board members] consider there is room to further propel the rebound in gross capital formation enjoyed during the third quarter to ensure greater economic dynamism that will bring the Colombian economy closer to the growth rates observed before the pandemic. In this regard, they note that the 1.8% GDP growth projected for Colombia in 2024 is lower than the average GDP expansion recently estimated for Latin America (2.1%),” said the minutes.

“They stress that the recent recovery in specific components of gross fixed capital formation, such as civil works and machinery and equipment, which contribute more than 50% to fixed investment, suggests that an improvement of close to 3.0% could be reached in 2025 for Colombia, which is higher than the forecast for Latin America (2.3%), and will help it recover the position it held for almost a decade before 2020.”

Healthy economic indicators can also lead to higher prices on the back of strong demand, so the central bank also adopted a cautious stance on monetary easing.

The bank projects slower inflation convergence to target in 2025, citing currency depreciation pressures and their impact on prices, adding that additional inflationary pressures are expected from minimum wage increases and regulated price adjustments.

Market volatility has increased due to concerns over 2025 budget financing gaps and recent reforms to regional funding transfers, while external pressures have increased due to tighter global financial conditions, a slower pace of US interest rates cuts and falling commodity prices which have affected Colombia’s terms of trade.

Colombia’s state-owned energy major Ecopetrol is a key income generator for the Treasury.

“They [board members] agreed that 2025 may bring a challenging macroeconomic scenario that requires vigilance and harmonization in both monetary and fiscal policy design,” the bank said.

Earlier in December, Colombia’s statistical office DANE said industrial production expanded 1.1% in October year on year, while the nation’s leading economic indicator showed broad-based growth acceleration across major sectors.

The reading was in line with the manufacturing PMI index for November, which showed broad-based improvement on better demand.

Meanwhile, DANE’s main economic indicator for activity across the economy, also published earlier in December, rose 2.94% in October, year on year, an improvement from September’s downwardly revised 1.07% increase.

Within petrochemicals, however, the story may be more mixed as domestic producers will continue to face stiff competition from competitive imports.

All petrochemicals players interviewed by ICIS at the annual meeting of the Latin American Petrochemical and Chemical Association (APLA) held in Colombia’s Cartagena in November, spoke of challenging market conditions in 2025.

This included Ecopetrol’s petrochemicals division, its subsidiary producing polypropylene (PP) Essentia and plastics distributor Grupo Almatia.

Prices closed the year with decreases. Latin American PP values, for instance, fell in Colombia and Chile on the back of competitive offers from abroad as well as lower feedstock costs.

Focus article by Jonathan Lopez