Report of the Board of Directors to the Congress of the Republic - March 2018

Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

The figures for 2017 and beginning of 2018 indicate that the Colombian economy is reaching the end of the adjustment process that was required as a result of the sequence of shocks over the last few years which affected its macroeconomic performance. The first shock, and undoubtedly the most severe one, was the fall in the price of crude oil that started in the second half of 2014. This produced a sharp deterioration in the terms of trade with significant consequences for economic growth and for foreign and domestic equilibrium. Subsequently, the “El Niño” phenomenon, which started around the end of 2015, caused a significant rise in food prices that put pressure on consumer inflation. Likewise, the collapse in the economic activity of our major trading partners in the region, who were also affected by the oil shock or by the drop in the prices of other commodities (such as copper), weakened the demand for our non-traditional exports. Last of all, the 2016 tax reform, a measure that was necessary for our fiscal sustainability and included an increase in the VAT as its main component, reduced the disposable income of households and, thus temporarily, the growth of consumption. Box 1 - Impact of the Reduction in the Terms of Trade on Investment Box 2 - Situation in the Colombian Agricultural Sector Box 3 - Recent Trends in the Labor Market: the Positive Outlook for Agricultural Employment Box 4 - Outlook for the Credit Markets Based on Banco de la República Surveys Box 5 - Sovereign Credit Ratings Box 6 - Banco de la República’s Framework for Medium-term Expenditures (operations and investment), 2018-2022
Box 1. Impact of the Reduction in the Terms of Trade on Investment
Box 2. Situation in the Colombian Agricultural Sector
Box 3. Recent Trends in the Labor Market: the Positive Outlook for Agricultural Employment
Box 4. Outlook for the Credit Markets Based on Banco de la República Surveys
Box 5. Sovereign Credit Ratings
Box 6. Banco de la República’s Framework for Medium-term Expenditures (operations and investment), 2018-2022