Policies Stifling Growth in Colombia: Fitch

• Fitch Solutions has lowered its 2023 and 2024 forecasts from 1.7% and 2.0% to 1.5% and 1.8%, respectively, for Colombia as policy tightening will continue to weaken consumption and investment growth.
• This downward revision comes on the back of a previous revision from 2.0% to 1.7%, after the preliminary Q223 real GDP print showed that the economy contracted 1.0% q-o-q in seasonally-adjusted (SA) terms.
• Fitch’s most recent adjustment reflects its updated monetary policy forecast, with persistently elevated inflation likely to push back the timing of the first rate cut by the Banco Central de la República (BanRep) from September to October, with the possibility of even further delays to December.
• With inflation remaining sticky through 2024, Fitch expects BanRep (Colombian Central Bank) will keep rates higher for longer, which will keep borrowing costs elevated and depress investment and private consumption growth.
• That being said, uncertainty regarding interest rates does pose some downside risk to Fitch’s growth forecasts. While Fitch expects that rate cuts will likely begin in October, inflation remains hot. If headline or core inflation remains stickier than expected, BanRep would likely delay the cuts to December 2023 or possibly 2024. This would keep borrowing costs high and would lead to a more pronounced slowdown in 2023 and likely the early months of 2024.

(Source: Fitch Solutions)