Tendencia Económica No. 264

Abstract

Editorial: During 2025, Colombia’s labor market has shown a favorable performance, characterized by a decline in unemployment amid higher labor force participation. In October, the unemployment rate stood at 8.9%, a decrease of 1.0 percentage point compared with the same period in 2024 (9.9%). This was accompanied by simultaneous increases in both the employment rate and the labor force participation rate, which reached 59.1% and 64.9%, up from 57.4% and 63.7% a year earlier, respectively. Meanwhile, after a rebound in the first quarter, informality continued to fall, reaching 56.5% in October, below its 2024 level (56.9%). Nevertheless, concerns arise regarding the quality of the jobs created: in the year to date through October, 50% of the new jobs created have been informal, a higher share than in previous years. This partly reflects that sectors contributing to activity growth, such as commerce, artistic activities, and agriculture, have informality rates above the average, and that job creation has been concentrated in positions with earnings below the minimum wage and in part time work, highlighting difficulties in generating stable, well paid jobs amid the sharp increases in labor costs in recent years.

This Editorial presents the main results of Colombia’s labor market in 2025 and analyzes the quality of the jobs created, as well as its determinants. In particular, it contrasts the unemployment declines observed in the first half of the year, associated with lower labor force participation, with the dynamics in the second half through October, when employment growth strengthened alongside an increase in participation. It also examines employment growth in terms of its composition between formality and informality, its relationship with the sectors driving the economy, and job creation by wage level. Finally, it provides a regional comparison of unemployment and informality, along with their possible link to labor costs, particularly the minimum wage and its increases, and the implications of these costs for inflation.

Actualidad: Fedesarrollo projects that in 2026 economic growth in Colombia’s main trading partners will remain stable at 2.6%, in line with the growth expected for 2025. On average, the exchange rate is projected to stand at $\$$4,052 in 2025 and $\$$3,943 in 2026, which would imply an appreciation relative to the 2025 average, but a depreciation relative to the monthly average observed in December 2025 ($\$$3,818), in a context marked by fiscal risks and uncertainty associated with the electoral cycle. In terms of productive activity, Fedesarrollo revised its 2025 growth forecast upward from 2.6% to 2.8%, driven by stronger performance in public administration activities. Growth is also expected to continue to be supported by the strong performance of artistic, commercial, and agricultural activities, while construction and mining would continue to subtract from growth. From the demand side, consumption is expected to consolidate as the main driver of economic activity, while investment would show a modest recovery, although remaining below pre-pandemic levels. In 2026, growth is expected to accelerate to 2.9%, with a sectoral composition similar to that of 2025 and a slight recovery in the construction sector.

On the external front, Fedesarrollo projects a current account deficit of 2.4% of GDP at the end of 2025, which would represent an increase of 0.8 percentage points relative to 2024 (1.6% of GDP). This increase would be driven by a larger goods trade deficit, associated with higher imports amid stronger domestic demand and the appreciation of the exchange rate observed in the second half of the year. Regarding prices, inflation is expected to close 2025 at 5.26%, reflecting lower inflationary pressures in regulated items and services compared with November. Inflation would remain outside the target range in 2026, when it is projected at 4.91%.

Finally, on public finances, the National Treasury’s debt management operations would reduce interest payments, so that the fiscal deficit would close 2025 at 6.4% of GDP, below what is projected in the fiscal framework. However, this effect would be temporary, and the lack of a structural fiscal consolidation in 2025 would imply that the fiscal position would continue to deteriorate in 2026 and over the medium term. In 2026, the primary deficit would increase to 3.5% of GDP and the overall deficit would reach 8.1% of GDP, above the level allowed under the fiscal rule’s deviation path (6.2% of GDP). In subsequent years, the overall deficit would remain above 8% of GDP in the absence of an adjustment, which would lead net debt to exceed the fiscal rule limit in 2027. In this context, it is essential to implement a fiscal adjustment strategy that combines revenue and expenditure measures to ensure the sustainability of public debt.