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Colombian Finance Chief Touts GDP Boost Most Economists Can’t See

Colombian Finance Chief Touts GDP Boost Most Economists Can’t See

(Bloomberg) -- Colombia’s 2018 tax reform will boost economic growth by more than one full percentage point, and return the country to the growth rates it hasn’t seen since the oil and mining boom ended five years ago, according to Finance Minister Alberto Carrasquilla.

According to most other analysts, its impact on growth this year and in 2020 will be modest or non-existent.

Colombian Finance Chief Touts GDP Boost Most Economists Can’t See

“The economy is rebounding,” Carrasquilla said Tuesday, at a conference organized by Moody’s Investors Service in Bogota. “These rebounds generate confusion, and people tend to underestimate them.”

The Colombian central bank, the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development and 32 analysts surveyed by Bloomberg all have lower growth forecasts than Carrasquilla. The tax reform, which took effect in January, honored President Ivan Duque’s campaign pledge to cut “asphyxiating” taxes on companies, while increasing taxes on salaries and dividends.

The economy is set to expand 3.6% this year, its fastest pace since 2014, and 4% in 2020, according to Carrasquilla. Without the tax cuts on companies, and other measures such as tax breaks for imports of capital goods, it would only have grown 2.8% this year and next year, according to a presentation Carrasquilla made at the Moody’s event.

In its 2018 mid-term fiscal plan, published two months before Carrasquilla took office last August, the Finance Ministry forecast growth of 3.4% this year and 3.6% in 2020.

The median forecast of analysts surveyed by Bloomberg was for growth of 3.1% this year, and 3.3% in 2020. Economists surveyed have trimmed their growth estimates for both years since the end of October, when Carrasquilla sent the first version of the tax bill to congress, indicating skepticism that the reforms will provide a major boost to growth.

In 2017, the U.S. cut the effective tax rate on corporations to its lowest rate since the 1950s in a bid to increase business investment. Bloomberg Economics estimates this led to a 1% boost to nonresidential investment, adding 0.1% to GDP.

To contact the reporter on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editors responsible for this story: Matthew Bristow at mbristow5@bloomberg.net, Robert Jameson

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