Election forecast: cloudy
Deteriorating fiscal balances, weakening investment dynamics and rising external vulnerabilities are being driven by a structural imbalance: the government has increasingly absorbed excess savings from both the domestic private sector and foreign sources to finance its growing fiscal deficit. By the end of 2025, the private sector was generating significant excess savings – to the tune of 4.2 pp of GDP – while the government’s investment-savings gap had ballooned to 6.7 pp of GDP, requiring more reliance on external funding to address.
Investment in buildings and structures suffered tremendously in the wake of the COVID-19 pandemic, but these travails have also continued under President Gustavo Petro’s government. Capital stock is waning, eating away at the foundations of future economic growth. The decline of foreign direct investment is yet another issue. As of Q4 2025, FDI stood at less than 2% of GDP, almost half the 2010-2019 average; FDI is also losing its capacity to finance the current account deficit. FDI was able to finance only 62% of external savings as of Q4 2025. This means, of course, that Colombia is increasing its net liabilities with the rest of the world through higher indebtedness -- a more fickle source of financing than FDI.
Reverting these worrisome trends will be painful and unpopular. Higher interest rates might be required to curb external imbalances, but fiscal consolidation is a must. Either way, growth is bound to suffer before it surges again with healthier macro balances. Unfortunately, none of the current presidential candidates are sounding a warning alarm over the hard times ahead.
Uncertainly in the runup to the May 31 presidential election further complicates our outlook. A model developed by an EConcept partner aggregating major polling data suggests that a first-round victory by leftist government-backed candidate Iván Cepeda is highly unlikely, as Cepeda’s support seems capped below the threshold required for a first-round win.
The contest for the second place in a potential run-off is between far-right candidate Abelardo de la Espriella (known in Colombia as “ABDLE”) and right-wing uribista Paloma Valencia -- although Valencia seems to be losing steam, and the “center” is fading. Valencia does not appear to have taken votes away from ABDLE. This means that, if you asked us right now who will procced to the run-off, we’d probably say ABDLE. That’s arguably not the best result for the opposition, as ABDLE generates more negative reactions than Valencia does.
But polls also signal a huge potential undecided, and also so far “blank,” bloc of voter intentions. Adding up the voting preferences for the first round provides an interesting insight: the opposition could in fact capture 44%-45% of total of votes, which is pretty close to what both candidates would win in the run-off scenarios (45.1% for Valencia and 43% for ABDLE). But Cepeda goes from 38.9% to 44%-46% between the first and second rounds, meaning he is, as of now, winning the “center” (this coincides almost exactly with the 6% of candidates Sergio Fajardo and Claudia López). Not good news at all.
One could argue for some optimism over, and opportunity for, the opposition to win the presidency. But the opposition candidates, especially on the far right, don’t appear to understand that the stakes are huge this time: if Cepeda wins, the very principles of a sound market economy and a real liberal democracy are in danger of severely eroding. It is not by attacking one another that they’ll stave off this grim possibility.
Now read on...
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