Prospectiva Económica, Marzo 2025

Abstract

In this edition of Prospectiva Económica, we analyze the key economic results for 2024, along with Fedesarrollo’s projections for 2025 and beyond, focusing on economic growth, inflation, the external sector, and fiscal accounts. This analysis examines the implications of recent developments in both the international and domestic contexts, shedding light on the short-term and structural challenges facing the Colombian economy.

In 2024, the global economy grew by 3.2%, slowing slightly from 2023’s growth of 3.3%, amid restrictive monetary policies, regional conflicts, and heightened financial market volatility. For 2025, growth is projected to moderate further, reaching 3.1%, below the historical average of 3.7%. This slowdown reflects weaker economic activity in the United States and China, as well as restrictions on international trade and ongoing global uncertainty. Correspondingly, the growth of Colombia’s trading partners is expected to decelerate, from 2.8% in 2024 to 2.5% in 2025, partly due to tariff measures implemented by the United States on some of its trade partners.

Against this backdrop, the Colombian exchange rate is forecast to fluctuate between $\$$4,300 and $\$$4,400 in 2025, with a median of $\$$4,341. This implies a depreciation of 5.6% to 8.0% compared to the 2024 average of $\$$4,073. This trend is attributed to a higher risk premium driven by both external factors—such as the uncertainty surrounding the trade war and its impact on global inflation—and local factors, including the reduction in the intervention interest rate and concerns about the sustainability of public finances, given falling commodity prices and a contraction in oil and coal production.

Regarding economic activity, Colombia’s economy grew by 1.7% in 2024, up from 0.7% in 2023. This acceleration was largely driven by the public administration sector, along with agricultural and artistic activities. On the demand side, gross capital formation and fixed capital growth, as well as robust export performance, were key drivers. Meanwhile, the unemployment rate remained steady at 10.2% in 2024.

Looking ahead to 2025, Fedesarrollo projects growth at 2.6%, supported by robust commerce and public administration performance, along with a recovery in investment and exports. However, several risks could lower growth to 2.0%, including weaker external demand due to international trade restrictions, elevated global and local uncertainty, and persistent inflationary pressures coupled with high interest rates, which may dampen consumption and investment. As a result, the industrial and construction sectors may experience slower growth, affected by reduced external demand and higher financing costs, while the commerce sector could be hit by slowing consumption. In the medium term, economic growth is expected to converge with its potential rate, bolstered by investment recovery. The unemployment rate is anticipated to fall to 9.8% in 2025.

In terms of the current account, the deficit stood at 1.8% of GDP in 2024, narrowing by 0.5 percentage points compared to 2023’s deficit of 2.3% of GDP. This improvement stemmed from a reduction in the factor income and services balance deficits, alongside a rise in current transfers, particularly driven by remittance growth. However, this was partially offset by a deterioration in the trade balance. The deficit was largely financed by foreign direct investment (FDI), which, despite falling by 15.2% in 2024, continued to cover 1.9 times the current account deficit.

For 2025, Fedesarrollo revised the current account deficit projection upward from 1.9% to 2.7% of GDP, an increase of 0.9 percentage points over 2024. This rise is primarily attributed to a larger trade deficit in goods, driven by higher imports as investment recovers. The continued international trade war will likely raise import costs due to higher global inflation, while affecting both traditional and non-traditional exports due to falling oil prices and slower growth in trading partners. Over the following years, the deficit is expected to widen moderately, aligning with stronger economic activity before stabilizing, which should help stabilize external liabilities. This edition includes a special analysis detailing the impact of the trade war on the Colombian economy.

Inflation closed 2024 at 5.20%, a significant decrease from 9.28% in December 2023. However, this downward trend was interrupted in early 2025, with inflation registering at 5.22% in January and 5.28% in February. As a result, inflation is expected to end 2025 at 4.43%, higher than the previously estimated 4.02%, due to greater inflationary pressures on regulated prices, services, and food. Meanwhile, the intervention rate closed 2024 at 9.50%, a reduction of 350 basis points from the previous year. It remained unchanged at 9.50% in January 2025 and is projected to close the year at 7.75%, 100 basis points higher than previously forecasted.

On the fiscal front, the analysis highlights the continued structural deterioration of public finances, a trend that has worsened since the pandemic. In 2024, national government revenues amounted to 16.6% of GDP, 0.5 percentage points below the forecast, while total expenditures reached 23.4% of GDP, 0.6 percentage points above the fiscal framework target. This imbalance resulted in a fiscal deficit of 6.8% of GDP, exceeding the projected 5.6% and contributing to an average deficit of 6.0% of GDP since 2020. As a result, Fedesarrollo concludes that the government failed to meet the fiscal rule in 2024.

To comply with the fiscal rule in 2025, Fedesarrollo estimates that a reduction of at least $28 trillion (1.7% of GDP) in spending will be necessary. Furthermore, compared to the previous edition of Prospectiva Económica, net debt is expected to follow a higher trajectory in the medium term. The chapter also includes a special analysis exploring the causes of the persistent fiscal imbalance since the pandemic, primarily attributed to structural increases in operating expenditures, particularly in health, the General System of Participations (SGP), pensions, and the Fuel Price Stabilization Fund (FEPC).

In 2024, all regions experienced growth acceleration compared to 2023, with the Pacific, Central, and Bogotá regions being the main drivers of national growth due to the dynamism of public administration, the agricultural sector, and services in Bogotá. In contrast, regions heavily reliant on the mining sector, such as the Eastern, Caribbean, and Amazon-Orinoquía regions, saw slower growth than the national average. For 2025 and 2026, growth is expected to be driven by Bogotá and the Pacific region, supported by the expansion of commerce, public administration, and industrial recovery. The Central, Caribbean, and Eastern regions will also see growth, although the decline in oil and coal production will continue to negatively impact regions dependent on these sectors, such as Amazon-Orinoquía, the Caribbean, and Eastern regions. The latter, in particular, faces additional risks in 2025 due to recent conflicts between the public force and illegal groups in the region.