Prospectiva Económica, Julio 2026

Abstract

The projections presented in this edition of Economic Outlook show, overall, only slight changes relative to those in the previous report. For 2026, we project slightly lower GDP growth, a smaller current account deficit, a broadly unchanged fiscal deficit, higher inflation, and interest rates similar to those projected in April.

Overall, the macroeconomic outcomes and projections reflect the consolidation of trends observed over recent quarters. In particular, they are driven by developments related to private domestic demand, the fiscal imbalance of the Central National Government (CNG), and the presence of moderate excess demand in the economy. They also reflect the evolution of key shocks discussed in the previous edition, specifically those associated with Colombia’s terms of trade and the effects of the substantial increase in the minimum wage. Finally, they incorporate a higher probability of emerging shocks, especially those associated with the El Niño phenomenon.

With regard to domestic demand, we expect the adjustment observed since the final quarter of 2025 to consolidate in 2026, supported by weak investment growth and a loss of momentum in private demand. Regarding the output gap, our estimates continue to indicate the presence of moderate excess demand, which has been gradually narrowing from the elevated levels recorded in 2022. On the fiscal front, we maintain our projection of a central government primary deficit of 3.6% of GDP.

Regarding supply and price shocks, the evolution of the terms of trade has broadly followed the pattern outlined in the April edition of Economic Outlook, increasing during the first months of 2026 before beginning the correction that is now underway. As anticipated in the previous report, the increase in the minimum wage has continued to exert upward pressure on inflation. These shocks are likely to be compounded by the occurrence of a severe El Niño event.

Against this backdrop, we have revised down our GDP growth forecast for 2026, which is now expected to be slightly below the growth recorded in 2025. This revision reflects our expectation that domestic demand—particularly private demand—will continue to lose momentum throughout the year. The slowdown in domestic demand, together with the improvement in the terms of trade observed during the first quarter, leads us to project a narrower current account deficit. On the fiscal side, we broadly maintain the projections presented in the previous edition of Economic Outlook, as no policy decisions have been adopted that would alter the underlying fiscal trends.

A combination of external and domestic factors has led to an appreciation of the Colombian peso against the U.S. dollar. The temporary improvement in the terms of trade, the recent decline in risk premiums, and their possible return to levels more consistent with economic fundamentals have contributed to a significant appreciation of the exchange rate. For the remainder of the year, we project an average exchange rate of COP 3,551 per U.S. dollar, implying an annual average of COP 3,600.

Inflation has continued to accelerate and remains well above the Banco de la República’s target range, owing to persistent excess demand and supply-side price shocks, particularly those stemming from the increase in the minimum wage. These pressures are expected to be reinforced by the effects of the El Niño phenomenon, leading us to project year-end inflation of 6.85%. In this context of elevated inflation, weakly anchored inflation expectations, and persistent excess demand, the Banco de la República is expected to keep its policy interest rate at the high level reached in June 2026.

For 2027, we project the beginning of a fiscal consolidation process, the continuation of the terms of trade prevailing during the second half of 2026, and an intensification of the effects of the El Niño phenomenon. Under this scenario, GDP growth is projected to be slightly lower than in 2026, reflecting domestic demand that continues to decelerate, partly as a result of the cumulative effects of the restrictive monetary policy implemented by the Banco de la República in recent years. The current account deficit is expected to widen modestly due to a deterioration in the average terms of trade during 2027, an effect that would outweigh the impact of weaker domestic demand on the external balance. The cumulative effects of restrictive monetary policy are expected to initiate inflation’s convergence toward the long-term target. In this context, the policy interest rate would begin to decline, ending the year at 12.0%.

Over the medium term, our projections assume the continuation of fiscal consolidation, accompanied by a rebalancing of domestic demand that gradually increases the share of investment. Under these assumptions, medium-term GDP growth would stabilize at around 2.5%, with output gradually converging to that rate as current excess demand is eliminated. Likewise, the current account deficit would converge toward its estimated long-run level of 2.5% of GDP. Inflation would continue its gradual convergence toward the 3% target, while the policy interest rate would decline to a neutral monetary stance, reaching 6% by the end of the projection horizon.

The baseline scenario described above is subject to important risks. The most significant relates to the potential effects of the change in government on the credibility of fiscal policy, which could lead to further declines in risk premiums and positive confidence shocks for the economy. Recent developments in sovereign risk premiums and asset prices appear to point in that direction. Should this trend continue over the coming quarters, it could result in significant revisions to the macroeconomic outlook.