Colombia’s growth potential has declined from above 4% before 2010 to around 2.5% currently, a pace that does not allow for substantial closing of the gap in GDP per capita vis-à-vis the most advanced economies. The growth slowdown reflects a prolonged productivity stagnation and a sharp drop of the investment rate. Labour utilisation remains subdued, with the labour force participation of women particularly low. Reviving investment, boosting innovation and skills, and bringing more women into the labour force are needed to restore income convergence with more advanced economies.

Strengthening access to quality education especially at the foundational stage would improve skills and raise female labour force participation. Enhancing regulatory quality and promoting competition, especially in upstream sectors such as electricity, would improve the business environment. A better designed R&D policy framework would incentivise firm-level innovation and productivity growth. High tariffs and burdensome customs procedures restrict trade integration and productivity.

The economy will grow by 2.8% this year, 2.8% in 2026, and 2.9% in 2027. Investment will resume its gradual and partial recovery as financial conditions ease, but uncertainty will keep it muted. Private consumption will be sustained by lower inflation, a strong labour market and robust remittances. The external sector will contribute less, as oil and mining exports are constrained by domestic production and low oil prices, and imports are strong. Inflation is expected to fall but remain above the 3% target through 2027.

Monetary policy is projected to be tight to ensure a return of inflation to target. While fiscal consolidation willresume, fiscal deficits are projected to remain well above 4% of GDP as the fiscal rule remains suspended. To stabilise debt and restore investor confidence, a more ambitious consolidation strategy is needed, including a comprehensive tax reform and reducing budget rigidities. A return to the fiscal rule and the reestablishment of a credible medium-term debt anchor will also be key.