Key insights

  • New COVID-19 outbreaks are not denting our expectations of economic recovery; extraordinary liquidity support should continue.

  • However, vaccinations have been rolled out more slowly than the virus has spread. Risks to growth will persist and volatility could remain high.

  • In this environment, EMs’ fiscal space is smaller than usual. Fiscal adjustments will be even more relevant than in normal times.

  • Central banks will remain on the accommodative side: BanRep shall hold its rates in the coming months, while fiscal policy will be in the spotlight. Tax reform is essential.


In 2020 the economy recovered in line with the re-opening

Some sectors have already recovered 2019 production levels; however, employment hasn’t rebounded at the same pace.



The “new normal” scheme has accelerated the recovery

By the end of 2020, the services-related sector led the recovery, strongly related to the re-opening’s consolidation.
We expect the economy to be more resilient in 2021 since lockdowns are now more targeted and shorter.



The economy should continue its recovery as restrictions ease

At the beginning of the year, Colombia’s main cities implemented targeted restrictions, mainly on activities with intense social interactions. However, as COVID-19 new case numbers came down, restrictions were eased by the end of January.


Deaths and ICU occupation diminished

Reduction in rates of ICU occupation triggered new re-opening measures.



Vaccination program… coming soon

The Colombian government announced that the mass vaccination program would begin on February 20; it is expected that a total of 35 million people will be covered by it this year.



Leading indicators pointed to resilient activity in January

Energy demand was close to the previous year’s levels, while gasoline demand reductions were moderate.



Consumption was the sector hardest hit by the lockdowns

However, in February, Scotia Colpatria transactions rebounded as soon as the main cities eased restrictions.



The consumption basket is normalizing

Non-essential purchases are gaining traction.



Employment recovery matters, but also its quality

After re-opening announced in August, job recoveries were substantial. Now, employment gains are moderating. However, informality is increasing, as it is the most flexible path for people to earn money.



A long road to go before we reach pre-pandemic production levels

In 2020, the economy ended close to 2018 production levels, with the output gap narrowing gradually.



Inflation should rebound as “new normal” consolidates

Some CPI groups remain weak on the back of negative demand pressures. However, in 2021 all the atypical effects, such as subsidies and education-fee reductions, should vanish, and CPI inflation should converge toward the 3% y/y target after the second quarter.



Monetary policy should remain on the sidelines

Despite the dovish call from the BanRep’s staff, the Board is expected to maintain the monetary-policy rate at 1.75% in the coming months until hard data confirms the economic recovery and gives a better sense of the output gap. Even though inflation should remain low in the near term, its expected rebound this year should prevent the Board from cutting.



Fiscal policy: looking for medium-term sustainability

Although the sale of ISA should generate income for the authorities in 2021, its effects will be short-lived. Tax reform continues to be essential. However, the potential to increase revenue collection may be limited.


FX volatility could persist, but ranges should be narrow

Current levels in the USDCOP are above what fundamentals imply; however, fiscal uncertainty and economic recovery could keep the COP weaker than its equilibrium value, at around 3,500–3,550 in the short term.



The yield curve’s slope reflects fiscal uncertainty

Large COLTES issuance and fiscal discussions should keep the yield curve steep, while global risk sentiment could limit directional movements in average rates.



Debt swaps shall continue in 2021

The long end of the curve should continue facing supply pressures.



Portfolio investment flows

Offshore investors were main COLTES buyers in 2020; in 2021, we expect them to maintain their share of local debt.



Macro forecasts



Scotiabank Economics (Colombia)

Sergio Olarte
Scotiabank Colombia

Jackeline Piraján
Scotiabank Colombia 



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