Growth and earthquake: How much can the economic script vary?

The Colombian economy recorded a second-quarter growth rate of 3.5 percent in 2026, surpassing analysts' expectations, according to data released by the National Statistics Office (Dane). This performance was driven primarily by public spending, which continued to act as a key driver of internal demand, and a surge in household consumption fueled by the FIFA World Cup. Consumers increased their purchases of televisions and spent more on entertainment services during the tournament, contributing significantly to economic activity. Despite this positive outcome, the outlook for the year remains uncertain. While some experts suggest the country could finish above the current projected growth rate of 2.6 percent, there are still no clear signs of a sustained acceleration in economic expansion. The situation remains tight due to long-term structural imbalances, including a fiscal deficit that could exceed 7 percent of GDP, according to the Autonomous Fiscal Rule Committee (Carf). Some recent forecasts even suggest the gap might be even wider. The recent earthquake on August 10 has introduced new dynamics into the economic landscape. Although the disaster caused significant human loss and hardship for thousands of affected residents, some economists see it as an opportunity to accelerate economic recovery. Mauricio Cárdenas, former Minister of Finance, argues that the necessary investment to stimulate growth would have a multiplier effect, though implementing such projects is not immediate. He notes that the benefits of these investments will likely become visible in 2027 rather than sooner. Cárdenas highlights the dilemma facing policymakers: reducing reliance on public spending as a primary engine of growth presents a challenge. Analysts agree that this model is unsustainable. Luis Fernando Mejía, CEO of Lumen Economic Intelligence, points out that while the gross domestic product (GDP) has grown at an average of 2.9 percent over the past four quarters, much of this increase can be attributed to government spending. Without this boost, he estimates growth would have been just 0.9 percent. Mejía warns that the fiscal problem is so severe that it is unlikely the government will avoid cuts in public spending, even with the recent tragedy. However, he suggests that in the very short term, the extent of these reductions may be less drastic. Markets, however, continue to anticipate a major adjustment in the coming years. This expectation has already led the current minister of finance, Miguel Gómez Martínez, to accept a proposal from lawmakers to return the 2027 general budget project, originally submitted by the outgoing administration, for review. The proposed budget totals 575.6 trillion pesos, with 367.7 trillion allocated for operational expenses. This move opens the door for potential restructuring of the financial plan for the upcoming year and maintains anticipation around the adjustments Gómez may propose. Meanwhile, uncertainty persists regarding how the government under President Abelardo De La Espriella will manage its finances, particularly given its commitment to avoiding additional taxes on citizens. This uncertainty extends to the potential tax reform legislation that is set to be presented to Congress in September. Questions remain about whether the government can maintain its promise of not increasing taxes while addressing fiscal challenges. Cárdenas, who views the second-quarter growth as artificially inflated due to unsustainable measures such as salary increases and hiring through service contracts, emphasizes that the economy must transition toward private investment as its main growth driver. In his view, this shift could lead to greater financial stability. However, Cárdenas cautions against placing too much hope in reconstruction efforts alone. He acknowledges that while rebuilding infrastructure and communities is essential, it will require careful planning and resources to ensure lasting results. The path forward remains complex, with multiple factors influencing both the near and long-term trajectory of Colombia’s economy.