President Juan Manuel Santos began his second term in office on August 7th, 2014, which will end on August 7, 2018. After four years of negotiation and the approval of the six points of the agenda agreed in 2012 the Colombian Congress approved on 30 November 2016 the new peace agreement between the Government of Colombia and the Revolutionary Armed Forces of Colombia (FARC-EP - Fuerzas Armadas Revolucionarias de Colombia-Ejercito del Pueblo).
Colombians will elect a new president on Sunday, May 27, 2018. The winning candidate must obtain half plus one of the total valid votes, otherwise there will be a second round between the two candidates with the highest vote on Sunday, June 17, 2018. The winner will govern for a maximum period of four years, starting on August 7, 2018.
Economic growth in the country slowed to 1.8 percent in 2017. Private consumption adjusted to the one-off impact of the 3-percentage point (pp) VAT increase. Government consumption remained subdued due to continued fiscal consolidation efforts.
On the supply side, industrial production declined in 2017, primarily due to weak performance in the extractive industries, as gold, platinum and silver output plunged. Oil and gas production declined nearly 4 percent and refining output also fell. The manufacturing of textiles and beverages declined.
Financial and social services contributed the most to growth, while the agriculture sector expanded 4.9 percent as the effects of the El Niño phenomenon dissipated and the livestock sector expanded more rapidly.
Growth is expected to strengthen gradually over the 2018-2020 period, with growth accelerating to 2.7 percent in 2018, and further to 3.6 percent by 2020, supported by higher oil prices, stronger private sector demand, and a pick-up in implementation of the 4G infrastructure program. The 2016 structural tax reform is yet to reach its full domestic resource mobilization potential, as lower economic activity and delays in reforming the tax administration have weighed on revenues.
Further fiscal consolidation efforts are thus critical for creating fiscal space for the post-conflict related spending and keeping a minimum level of public investment, while complying with the fiscal rule. The rule requires that the Central Government deficit declines by 2.6 percent of GDP by 2022 to 1 percent of GDP, with the structural deficit declining by 0.9 percent of GDP to 1 percent. The continued compliance with the fiscal rule, instituted for the first time in 2012, shows that fiscal management remains strong.
Colombia's flexible exchange rate regime is one of the first lines of defense against external shocks. Consistent with the inflation-targeting regime, the flexible exchange rate acted as the main shock absorber, depreciating more than 70 percent between mid-July and early 2016, before appreciating slightly in 2017.
The current account deficit adjusted more than expected to 3.3 percent of GDP, as the terms of trade improved by more than 15 percent while external demand strengthened. The current account deficit is expected to remain below 3.5 percent of GDP, supported by higher oil prices, a gradual recovery in non-oil exports, and despite a marginal decline in oil production.
Inflation is expected to remain within the targeted range of 3 ±1pp, aided by prudent monetary policy, well anchored inflation expectations, and excess capacity.
Last updated: April 16, 2018