OECD Economic Outlook, Volume 2026 Issue 1

Colombia

Growth will moderate to 2.4% in 2026 and 2.1% in 2027. High inflation, tight monetary conditions and uncertainty will weigh on investment and moderate household consumption, while still‑large fiscal deficits continue to support activity. Higher oil prices linked to the evolving Middle East conflict will temporarily support export revenues but also add to inflationary pressures. Inflation is expected to increase in 2026, driven by persistent services inflation, minimum‑wage indexation and higher energy prices, before declining gradually from early 2027. Risks to the outlook are tilted to the downside, including more persistent inflation, delays in fiscal consolidation and weaker external demand in a more volatile global environment.

Monetary policy should remain restrictive until inflation and inflation expectations are firmly on a sustained path toward target. Fiscal consolidation is expected to resume, but deficits will remain large, pushing debt and interest costs higher. A more ambitious and credible consolidation strategy is needed to bring debt back toward its medium-term anchor and restore investor confidence. Strengthening policy credibility, reducing regulatory uncertainty and improving the business environment would support private investment and improve medium‑term growth prospects.

Growth has moderated as inflation pressures re‑emerge

Economic momentum weakened in early 2026, after robust growth through most of 2025 that was largely driven by consumption, with investment remaining weak. GDP rose by 2.2% year‑on‑year in the first quarter of 2026, and by 0.6% quarter‑on‑quarter seasonally adjusted. Final consumption grew by 3.4% year‑on‑year, supported by strong government consumption, and gross fixed capital formation rose by 3.7% but remained uneven amid continued weakness in construction and infrastructure. Business and consumer confidence remain subdued, reflecting rising inflation, tighter financial conditions and heightened uncertainty. Investment conditions remain weak, elevated borrowing costs and caution ahead of the electoral cycle weighing on capital spending.

Colombia

1. The horizontal dashed black line indicates the target inflation rate (3%), and the shaded area the tolerance band around the target.

Source: OECD Economic Outlook 119 database; and Central Bank of Colombia.

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Colombia: Demand, output and prices

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Inflation pressures intensified again in early 2026. Inflation rose to 5.7% in April, while core inflation reached 5.8%, reflecting higher labour costs following successive minimum‑wage increases, strong indexation mechanisms, and continued fiscal expansion. Food inflation has also increased, reflecting weather-related shocks. Inflation expectations have moved further above the 3% target. Higher oil prices linked to the evolving conflict in the Middle East have begun to feed into consumer prices, notably through fuel and transport costs. While Colombia is a net exporter of crude oil benefiting the current account, the overall macroeconomic impact is likely to be limited, as offsetting effects through imports of refined fuels and fertilisers, fiscal price‑smoothing mechanisms, weaker global demand and higher risk premia dampen the net benefit.

Monetary policy is restrictive, while fiscal policy remains expansionary

Monetary policy tightened again in early 2026 in response to rising inflation expectations. With inflation still rising and expected to remain above target and a still positive output gap, the policy rate is projected to increase further to around 12.75% by the third quarter of 2026, remain at that level until mid‑2027, and ease only once inflation and expectations are clearly on a sustained path toward target. Fiscal policy remains expansionary following the suspension of the fiscal rule in mid‑2025, weakening the credibility of the fiscal framework and contributing to elevated sovereign risk premia. Expected consolidation over the projection period, with the central government deficit declining to around 4% of GDP by 2027, falls short of the government’s stated plans and the requirements implied by the fiscal rule. A return to the fiscal rule in 2028 would therefore require additional consolidation measures, raising concerns about political feasibility and policy credibility.

Growth is set to moderate, with inflation remaining high

Growth is expected to slow over 2026–27 as the economy adjusts to tighter financial conditions. Private consumption will decelerate as support from large minimum‑wage increases is increasingly offset by high inflation, tighter credit conditions and higher unemployment. Investment will remain held back by elevated borrowing costs. Externally, higher oil prices are expected to support the current account in 2026, partly offsetting weaker global demand, before reversing in 2027 as commodity prices and global demand moderate. Further fiscal slippages could raise risk premia, and potential El Niño-related shocks could add to inflation and weigh on growth. External risks include weaker growth in the United States, Colombia’s main trading partner, and tighter global financial conditions, which could amplify exchange‑rate pressures. On the upside, higher oil prices or a credible fiscal adjustment could support confidence and investment.

Restoring fiscal credibility is key to sustaining growth and disinflation

Decisive fiscal consolidation is required to stabilise debt around its medium-term anchor, lower risk premia and support disinflation. This should be underpinned by aby clear and credible commitment to return gradually to the fiscal rule supported by improvements in spending efficiency and a comprehensive and gradual tax reform. Better targeting of social transfers and subsidies, broadening tax bases, reducing inefficient tax expenditures and rebalancing the tax mix away from corporate taxation toward personal income taxation, would support private investment and medium‑term growth. Reducing the cost of formality—including lowering social contributions for low‑income workers—would strengthen revenues over time and raise productivity. Strengthening energy security, reducing fiscal costs and advancing climate objectives reinforce the case for accelerating electrification and the expansion of non‑hydro renewable energy, a case further underscored by recent geopolitical tensions. Further progress in phasing out fossil‑fuel subsidies, as reflected in recent increases of domestic gasoline and diesel prices, and shifting support towards targeted compensation for vulnerable households would support the energy transition and reduce fiscal pressures.