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If you’re considering doing business in Columbia, it can be helpful to understand trends impacting the current economy. Below is a breakdown of the economic outlook in Colombia as well as facts about the country’s economy in 2021.
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Government’s Fiscal Packages
Economic growth in Colombia has been increasing steadily in recent years. The overall growth rate in the country reached 3.3% in 2019 and was set to increase even more in 2020, according to most economic experts. Then, the COVID-19 pandemic began, and the country’s economy suffered. In fact, the recession the pandemic caused in Colombia was the worst the country had experienced in nearly 50 years.
In response, the government responded like many others around the world—taking decisive action to support their economy. The government passed an economic stimulus package that totaled almost 3% of the country’s total GDP for 2019. The government gave funds to the country’s health system, delayed collection of certain taxes, and created new programs to foster job growth.
The Colombian government even set up new loan programs and lines of credit so that businesses could stay afloat. The country’s central bank reduced the intervention rate to the lowest level in its history to help as well. Despite all these measures, Colombia’s economy contracted by 6.8% overall in 2020.
Growth in 2021
Many people had high hopes for Colombia’s economy in 2021. The biggest driver of the bounce back is expected to be increased demand from both foreign and domestic sources.
Colombia’s major export, oil, is seeing increased prices compared to last year, which is helping to revitalize the country’s economic outlook. Oil accounts for almost half of the country’s total exports.
FocusEconomics forecasted an overall growth in GDP of 6.5% for Colombia in 2021. Looking ahead to 2022, they predict a growth rate of 3.7%.
Deficit a Concern
The public deficit is a major concern for outside investors and for the Colombian government as well. Because of the pandemic, the public deficit hit 62.8% of Colombia’s GDP in 2020. That’s a significant uptick from the 52.3% level it was at in 2019.
The deficit is expected to stabilize somewhat in the years ahead, however—with projections reaching 64.2% in 2021 and 64.3% in 2022. However, those levels are still much higher than they were only a few years ago, and it could lead to a stunt in the rebound of the country’s overall economy.
Much of these issues are due to the slowdown of exports during the height of the pandemic. Without outside investment money the country was used to—especially with its oil exports—the government was forced to finance businesses through many internal loans.
There has been much controversy recently about proposed changes to Colombia’s tax law. The Colombian Congress amended its 2018 tax reform bill in 2019, which reduced the corporate tax rate to 30% in 2022, which was to be 3 percentage points lower than it was in 2019.
In July of this year, though, the Colombian government revamped that tax reform bill to include new changes on the private sector. Under the proposal, the corporate tax rate would actually increase all the way to 35%.
This caused a lot of outrage both from potential investors abroad and from some people within the country. Many outside investors now appear concerned that more fiscal consolidation will be happening in Colombia in the near future and that it won’t be a favorable country for business.
Unemployment Still High
Colombia wasn’t alone in experiencing a huge increase in unemployment in 2020. The COVID-19 pandemic put a halt to a lot of economic activity, which reduced jobs and working hours for many.
The country’s unemployment rate increased from 10.5% in 2019 all the way to 16.1% in 2020. That number is expected to go down to 12.8% by the end of the 2021, but that still marks a sizeable increase from 2019 levels.
There are many inequities that remain in employment throughout Colombia. Almost one-third of the country’s population lives their everyday lives below what would be considered the local poverty line. The Colombian government is trying to counteract that by investing heavily in rural areas where poverty is especially high. New economic and educational programs are being created as well, which they hope will lift up people from all parts of the country. In the end, if the initiatives prove successful, the country could experience a quicker-than-expected economic recovery.
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