Academic literature on the topic 'Consumer goods deficit'

It is said that public finance must be balanced at least in the long run. According to the so-called MMT (Modern Money Theory or Modern Monetary Theory) approach, however, this is not true. It is often pointed out that MMT lacks the mathematical analysis used in ordinary economic discussions. The purpose of this paper is to present a brief theoretical and mathematical basis to the backbone of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as maximizing consumer utility through utility functions and budget constraints, and equilibrium between demand and supply of goods under perfect competition with constant returns to scale technology. Using a simple overlapping generations (OLG) model that includes economic growth due to technological progress, we present the following results. The budget deficit equals the increase in people's savings, and the accumulated budget deficit equals people's savings. The budget deficit is a cause and the savings is a consequence, not the other way around. Deficits are created by the government, which determines income, which determines savings. Deficits create savings, not savings finance deficits. Reducing the budget deficit will reduce savings, income, and consumption.

Introduction. In 1930th – the 1950th years in the USSR the centralized planned command economic model was realized, where the main resources were aimed at the development of means of production. The production of consumer goods, as well as the wages of the population, were extremely limited, so the emission was the main source of development. After the death of I. V. Stalin, his successors changed the model. They refused to maintain the balance of the economy and money circulation and redistributed part of the state’s income in favor of the population, by significantly increasing cash payments. Results of this model are investigated in the article. Materials and Methods. The study bases on the departmental documents of the State Bank of the USSR. They contain not only departmental statistical data, but also expert assessments, which in the article are compared with the results of modern researchers. Results. The growth of money incomes of the population led to an increase in the cash supply, which took place at an outstripping pace. The deficit of the economy could not be overcome. In the same years, producers’ cooperatives which partially satisfying the needs of the population were nationalized. Their employees have become unregistered private entrepreneurs, who produced goods and services in the shadow economy. A significant part of the population who produced and consumed these goods ensured the flow of money from the official economy to the shadow one. Another part of the excess money was deposited in savings accounts. Ignoring the shadow sector parasitizing the deficit problem, the Soviet leadership did not stop attempts to solve it. A significant part of the USSR’s oil and gas revenues was spent on consumer goods. The result of the implemented economic policy was the inflationary bubble and the growth of the shadow economy. Discussions. The transition to a new economic model can be explained by the fatigue of the ruling class from the stress of previous decades, as well as the populism of Stalin’s successors. Through the production of the consumer goods, the official economy was tightly connected with the shadow one, which began to grow rapidly at the expense of budget funds, subjugating state trade, generating deficits, and corrupting the government machinery. The government lost the fight against the shadow economy, and in fact, ignored its presence. At the end of 1980th the Soviet economy collapsed. Conclusion. The transition to a new economic model led to the long-term destabilization of money circulation and to the concentration of money, which was not provided with goods and services. The failure of the government to stabilize money circulation and solve the problem of commodity deficit has caused an increase in unmet demand, as well as the growth of the shadow economy. The inability of the government to break the link with the parasitic shadow economy and stop the growth of the cash supply predetermined the economic collapse of the USSR.

The objective of this paper is to study and analyze the growth and direction of Nepalese foreign trade along with the causes and recommendations of trade deficit. Efforts have been made to sort out the principal sources of the trade deficit in Nepal. Landlockedness, political instability, lack of export diversification, devaluation of domestic currency, lack of resources, etc. are the major causes of the trade deficit in Nepal. Nepal, being not self-reliant on factors of production, consumer goods and capital goods, needs to import goods from abroad. On another hand, Nepal’s exports are heavily concentrated; both in terms of product and destination. Nepal’s major trading partners are India, China, U.A.E, etc. During the year 2019/20, Nepal exports goods worth RS. 97.71 Billion And import goods worth RS. 1196.80 billion Leading to a trade deficit of Rs.1099.09 Billion. Trade deficit is acting as negative catalyst in the economic growth and GDP of a country. Increased deficit has caused suppressed inflation. Import to export ratio is continuously increasing as demand is increasing and these demands could not be met by the domestic producers. During the year 2019/20, the contribution of trade on GDP of Nepal is 40.65%. No doubt, trade is an engine of economic growth. So, after analyzing barriers in the foreign trade, some of the steps to be taken are recommended which includes the development of competitive ability and enhancement of Human Resources, commodity and market diversification, formulation of strong legal framework and trade policy, incentives for the promotion of export and priority in the agricultural and hydropower sectors.

The subject of the study are the theoretical and methodological bases for the regulation of aggregate demand at the macroeconomic level, aimed at the effective development of the Ukrainian economy. The purpose of the study are theoretical analysis of the system of macroeconomic regulation of consumer demand, the definition of its methods, mechanisms and features in the context of modernization of the economy, the development of recommendations for effective management of consumer demand from the state, interaction of internal and external factors. Methods of research are based on general scientific principles and fundamental theses of economic theory, marketing and statistics, and include methods of comparative economic analysis, economic–mathematical modeling, forecasting, and others. Results of the work are proposals on the state policy to stimulate economic development on the basis of balancing the growing demand by the growing production of consumer goods and services through income policy, support to the national commodity producer, the anti–inflationary policy of the NBU, the maximum possible deficit–freeconsumer market, and import substitution. Application of results. The economy and management of the national economy, in terms of state systems and mechanisms for managing the economy at the sectoral, intersectoral and regional levels, the sphere of state regulation of social and economic development in the interests of rapid growth of living standards through the development of domestic production of consumer goods and services on the basis of import substitution and macrofinance stability. Conclusions. For macroeconomic stability of the economy, consumer demand should be constantly balanced by supply volumes – the production of consumer goods and services of the appropriate quality and quantity that corresponds to the demand structure and its potential changes. Consumer demand depends on many social and economic factors, among which, in the current conditions of Ukraine, the basic moods are consumer sentiment, income of the population, consumer preferences. The state regulatory mechanism should actively influence the first two and only take into account the third. Long–term macroeconomic stability should ensure the propensity of the population to consume, the policy of growing incomes is the solvency of consumer demand. Direct influence on consumer demand the state should implement through social policy, mediated – through the development of entrepreneurship and support of individual industries.  

The article deals with the problem of shortage of consumer goods during the period of perestroika. This historical aspect is one of the key aspects in the study of the daily life of Soviet society. The purpose of the study was to determine the causes of the deficit, to analyze methods to overcome it. The article also examines various phenomena of deficit manifestation: queues, coupons, and the black market. To develop these goals, various approaches and methods were used: historical-systemic, historical-genetic, comparative-historical and historical-dynamic, quantitative and others. Analysis of archival historical sources, workers complaints, reports of government and party organizations, materials of historical interviews. As a result, it was found that the deficit had a huge impact on the socio-political climate in the USSR. Its manifestations became an integral part of everyday life, and every year the situation with the supply of goods became worse. Similar questions were raised by historians earlier, they were studied on materials from other regions of the Middle Volga region, however, a comprehensive analysis of the supply situation was not made on materials from the Kuibyshev region. It was also possible to establish the nature of the influence of problems with the supply of consumer goods on everyday life, public opinion, the psychological state of people, to trace the dynamics of their attitude to this problem. The significance of the findings will complement the materials on the problem of the transition of the USSR and Russia to a market economy, as well as on the social processes that took place at the end of the XX century

This study aims to find out how the impact felt by the community after the implementation of the VAT rate increase policy on individuals who act as end consumers, and business actors or MSMEs who act as distributors. The method used in the study is Systematic Literature Review (SLR) from various studies on the impact and implications of VAT rate increases in Indonesia. The results of the study show that VAT affects the price of goods and services in the market, increases production costs and selling prices, and worsens inflation. However, the increase in VAT rates can also increase government tax revenues, reduce the budget deficit, and stabilize the country's fiscal condition. In addition, the increase in VAT can affect consumer behavior and business investment, especially in the manufacturing, trade, and service industry sectors.

The subject of research is the theoretical and methodological foundations of the regulation of aggregate demand at the macroeconomic level, aimed at the effective development of the economy of Ukraine. The purpose of the study is analysis of the consumer demand impact on the equilibrium conditions between production (accumulation) and consumption, including consideration of ways to optimize the inter–branch structure of consumer demand for programming economic development. Methods of research are based on general scientific principles and fundamental principles of economic theory, marketing and statistics, and include methods of comparative economic analysis, economic and mathematical modeling, forecasting and others. Result of the work are proposals to achieve optimal proportionality between the growth of income of the population, consumer demand, the development of industries to minimize macro–financial imbalances and achieve the highest possible increase in GDP under these conditions. Application of results. Economics and national economy management, in the part of state systems and mechanisms of economic management at the international, sectoral, inter–sectoral and regional levels, methods and economic levers of regulation of economic processes and their effectiveness. Conclusions. Consumer demand is the potential ability of households to purchase certain volumes of goods and services for their needs. This volume and its commodity (inter–sectoral) structure depends on a complex of factors acting at the national, sectoral, regional and corporate level. For the macroeconomic stability of the economy, consumer demand must constantly be balanced by the production of consumer goods and services. The production deficit is balanced by inflation, the growth of imports, the devaluation of the national currency, which, in turn, provokes financial instability and worsening conditions for capital investment and the development of the real sector. The source of consumer demand is the income of the population. With a balanced state policy, real wages should outpace the growth rate of GDP by 5–6 percentage points, consumer demand – by 3–4 percentage points. Government policy may partially influence the structure of consumer demand. By optimizing the intersectoral structure of the final product, an increase in consumer demand can be achieved by an additional 0.5–1 percent, and, accordingly, GDP — by 0.7–1.3 percentage points. For a more detailed study of consumer demand, it is advisable to single out also real, effective and optimal consumer demand. Effective consumer demand will be called such a volume, which cannot be increased at the expense of other measures of state policy, given the volume of income of the population.

A growing consumer price is creating instability in the macroeconomic environment and hinders the consumption level of especially the poor society. This paper then explored the major causes of such increasing consumer prices using Ethiopian cases. Using data from the National Bank of Ethiopia from 1982/1983 to 2019/2020, it condensed the information of monetary sector, external sector and fiscal sector variables to a small set to estimate the causes of Ethiopian consumer price hiking using the ARDL model. The factors determining consumer price differ from food to non-food. The most important factors determining food price are price expectation and fiscal factors. On the other hand, the main determinant of non-food consumer prices is the fiscal factor. The author also found evidence of fiscal factors and price expectation effects on general consumer prices. Therefore, to contain the rise in consumer prices, it needs to exercise conservative fiscal stances, which require minimizing deficit financing, reducing the import tax rate and reducing domestic indirect tax rates such as excise tax and value added tax on basic consumer goods and services. Moreover, sound government policies are essential to address inflation anticipations (providing information for society about the future of inflation) to change public opinion.

Small trade formats, like traditional trade formats, play a significant role in the trade sector and on the consumer goods retail market in the Republic of Serbia with a network of around 12.000 retail stores. On the other hand, the issue of productivity in trade in the conditions of labor deficit in this sector is increasingly important. The paper deals with the research of the productivity of retail stores with an emphasis on smaller trade formats such as independent trade shops. An analysis of the productivity and differences in the productivity of these trade formats was carried out in relation to the size of these stores and the degree of urbanity of the locations where they are located, using the example of consumer goods retail stores of a trade chain in one of the largest cities of the Republic of Serbia. The research analyzed more than 4000 data on sales of these stores in 2022, which were put in relation to the number of employees of individual retail stores. The results of the analysis are given by month as well as by quarter for the entire 2022. The analysis was carried out using parametric statistical tests. Precisely, the t test was used to determine differences in productivity based on the urbanity of the location of the retail store and ANOVA was used to determine differences in productivity based on the size of the retail store. The work aims to determine the existence of differences in the productivity of retail stores of fast-moving consumer goods in relation to their individual size and the degree of urbanity of the location where these stores are located.

Global trade in the 21st century is characterised by complex value chains. Successful exporters usually rely on quality imports, and exported goods cross borders many times before reaching their final consumer. This poses challenges to economic measurement as well as policymaking because it becomes difficult to characterise the true interdependencies between countries. Currently, estimates of the share of imports from a trade partner destined for re-exports, and the share used in the domestic economy, are crude at best. We develop a novel approach to estimate these shares. Instead of assigning imports for re-exports proportionally across all source countries, we consider the origin of imports for each trader who re-exports goods. The method is illustrated for the Netherlands, a major re-exporter. We find that non-European member states export 10 billion euros of commodities to the Netherlands that are destined for re-export to the United Kingdom. We also find that the goods trade deficit between the Netherlands and the United States is drastically reduced when taking re-export flows into account.

In the aftermath of the End of Cold War in the early 1990s, a “New World Order” grounded on economic globalism and US unipolar global power emerged. The US fomented open markets around the world, and it also adopted a democracy-human rights promotion project, either in the form of Clinton’s humanitarian intervention or G. W. Bush’s regime change. One ironic cornerstone of this Order was US’s quasi-alliance with state-capitalist and authoritarian China. Given China’s “unlimited supply” of disciplined low cost labor which manufactured consumer goods for the world in exchange for US dollar to be cycled back to support expanding US fiscal deficit, this quasi-alliance helped cement the US-centered global circuit of finance and trade and warrant the global supremacy of the US military. However, the contradictions between US capital and China’s state capitalism, China’s newfound capability of sustaining authoritarian regime abroad, and the explosive inequalities under manufacturing offshoring in the Global North have been eroding the legitimacy and popular support of this New World Order in both Global North and South. When this Order is coming to crash today, the world economy is fragmenting into competing spheres of influence dominated by rival powers.

Abstract This chapter considers the enforcement of those ‘quasi-security’ interests considered in chapter 7 in that the general characteristics that ‘true’ security interests display when they are enforced (in particular the obligation of the secured creditor to account for any surplus (or ‘windfall’) and the obligation of the debtor to make good any deficit (or ‘shortfall’)) do not arise. The financing devices are treated as straightforward commercial contracts and are generally enforced according to their terms, without the application of any of those ‘security’ principles, although in so far as these devices perform a security function, their express terms often reflect these ‘security’ characteristics, with the contract often providing for a financial adjustment so as to preclude the ‘secured creditor’ receiving a ‘windfall’ or suffering a ‘shortfall’. Reference is made to the consumer credit regulatory regime in so far as these devices fall within its scope.

Maize occupies an important position in the world economy, and serves as an important source of food and feed. Together with rice and wheat, it provides at least 30 percent of the food calories to more than 4.5 billion people in 94 developing countries. Maize production is constrained by a wide range of biotic and abiotic stresses that keep afflicting maize production and productivity causing serious yield losses which bring yield levels below the potential levels. New innovations and trends in the areas of genomics, bioinformatics, and phenomics are enabling breeders with innovative tools, resources and technologies to breed superior resilient cultivars having the ability to resist the vagaries of climate and insect pest attacks. Maize has high nutritional value but is deficient in two amino acids viz. Lysine and Tryptophan. The various micronutrients present in maize are not sufficient to meet the nutritive demands of consumers, however the development of maize hybrids and composites with modifying nutritive value have proven to be good to meet the demands of consumers. Quality protein maize (QPM) developed by breeders have higher concentrations of lysine and tryptophan as compared to normal maize. Genetic level improvement has resulted in significant genetic gain, leading to increase in maize yield mainly on farmer’s fields. Molecular tools when collaborated with conventional and traditional methodologies help in accelerating these improvement programs and are expected to enhance genetic gains and impact on marginal farmer’s field. Genomic tools enable genetic dissections of complex QTL traits and promote an understanding of the physiological basis of key agronomic and stress adaptive and resistance traits. Marker-aided selection and genome-wide selection schemes are being implemented to accelerate genetic gain relating to yield, resilience, and nutritional quality. Efforts are being done worldwide by plant breeders to develop hybrids and composites of maize with high nutritive value to feed the people in future.

Although there is no cure for fibromyalgia, patients can initiate numerous changes and make adjustments that improve their sense of well being. Simply stated, there are things patients can do without spending money or seeing a health care provider. Demonstrating a certain amount of control over the syndrome also improves self-esteem and instills a sense of self-worth. This chapter describes how modifications in diet, sleep habits, and lifestyle can ameliorate fibromyalgia. It also advises patients how best to deal with the weather, fatigue, pain, and their home environment so that they will hurt less and become more productive. Even though certain general dietary principles allow fibromyalgia patients to feel better, there is no “fibromyalgia diet.” No specific food regimens or supplements have ever been shown in any published, controlled study to be helpful for fibromyalgia despite the observation that “arthritis diet” books are a multi-million-dollar-a-year industry. How can we explain this discrepancy? First, people feel better when they eat healthy foods. Most “arthritis diet” books urge patients to eat three well-balanced meals a day and caution against overeating. Many recommend having the main meal at midday; heavy, late-evening dinners don’t give the body enough time to burn off calories and are associated with bedtime esophageal spasm or heartburn. Similarly, consuming alcohol, nicotine, or caffeine (in the form of coffee, tea, or even chocolate) at a late dinner can make it harder to get a good night’s sleep. Alcohol, in particular, should not be used as a painkiller. In turn, poor sleep can increase musculoskeletal pain. An acceptable healthy balance of proteins, carbohydrates, and fats can also increase energy and fight fatigue. What about vitamins? As people always on the go, Americans tend to settle for the convenience of quick-to-prepare, easy-to-consume refined, processed foods that are relatively deficient in vitamins and minerals. Multivitamin and mineral supplements can be useful additions for those who don’t have time or are unable to prepare well-balanced meals. Many specialized formulas with heavily promoted “herbs and spices” are available from acquaintances, distributors, and health food stores; none of these have been shown to be superior to Wal-Mart, Rite-Aid, or Osco preparations available at a fraction of the cost.

An important macroeconomic variable, current account deficit as percentage of gross domestic product is considered as an indicator of an economic crisis when it is above 5%. In the economies where current account deficit is a problem, source of current account deficit should be determined for the solution. In the case of an interaction between credit expansion and current account, policies using a credit mechanism can be applied to stabilize the current account balance. In order to determine the relationship between current account deficit and credit volume before and after the financial crisis, visual graphics based on data will be utilized. This paper analysis the cointegration, long and short run causality relationship between current account deficit and consumer credits for Turkey over the period 2004Q3-2013Q3. The results of Johansen cointegration test indicate a cointegration between these variables. The empirical results show that there is bidirectional long and short run casuality relationship among variables. After the financial crisis of 2008, the increase in credit expansion increased domestic consumption depending on imports causing deterioration in current account deficit. There are difficulties of low finance qualities of this current account deficit and the realization of structural transformation in favor of exports in short term. Targeting a continuing economic growth increases energy dependency and import of investment goods, so puts credit mechanism policies forward to fight with current account deficit. Limiting the credit volume more than necessary to reduce current account deficit can worsen the various macroeconomic variables.

The abundance of bacterioplankton and bacteriobenthos in fish ponds is largely determined by three main factors: water temperature, fish stocking density and fertilizers used. As the water temperature rises, the intensity of the metabolic processes of the microbiota increases, and their number increases significantly. The greatest number of microorganisms is contained in the surface layer of bottom sediments. Intensive consumption of the oxygen by bacterioplankton and bacteriobenthos can lead to fish kills. The use of probiotics in aquaculture is of great interest: their influence on the immunostimulation of farmed fish, direct inhibition of pathogenic bacteria and improvement of pond water quality have been studied by many researchers. In order to determine measures to improve water quality in fish ponds, the laboratory experiment with the probiotic Lactobacillus acidophilus was carried out in the conditions of the Laboratory of Hydrobiology and Ecotoxicology. In this experiment, water samples were collected from the fish ponds of the "Ghidrin-Falesti Fish Enterprise" in RM. The degree of water body organic pollution is characterised by the hydrochemical parameter BOD5, which varied from 8 to 28 (mg/L O2) in water samples of these fish ponds. In accordance with the "Regulations" in force in the Republic of Moldova (2013), BOD5 values > 7 (mg/L O2) correspond to water quality class V. Thus, in terms of the amount of organic substrate, the water in these ponds is a good habitat for heterotrophic microorganisms. As a result of the development of the scientific basis of the theory of fertilisation of fishponds by Soviet hydrobiologists (N. Arnold, G. Vinberg, V. Zhadin, A. Rodina, etc.) the following was revealed: when fish is raised in high stocking with artificial compound feed, the task arises to limit bacterial development, i.e. to manage bacterial processes in the fish ponds. The task remains relevant today. The aim of the experiment was to test the ability of lactobacilli to survive in the bottom layer of a fish pond in comparison with autochthonous microflora. For this purpose, water samples from the Calugar, Girla and Fagadau ponds were divided into two aliquots: matrix (natural sample) and matrix + lactobacilli. Lactobacilli are non-pathogenic Gram-positive microorganisms with high enzymatic activity. In relation to oxygen, they are microaerophiles. By type of nutrition, they are chemoheterotrophs, using organic compounds as a source of energy and carbon. All aliquots were incubated at 22°C without aeration and also without access to light to minimise the photosynthetic activity of phytoplankton. After five days, each aliquot was inoculated (at the appropriate dilution) into Petri dishes on Tergitol 7 agar (without TTC) and incubated at 22°C. In sanitary microbiology, MRS agar is used for testing lactobacilli and cultivation is carried out at (30 - 35) °C. In our experiment, the aim was not to create the specific conditions for lactobacilli. We used Tergitol 7 agar, which contains lactose as opposed to MRS agar, which contains dextrose. To find out the ability to grow on Tergitol 7 agar and to determine the specific characteristics of the colonies, a Lactobacillus acidophilus culture was inoculated on this medium and cultivated under the same conditions as the test samples. The results of the experiment are presented below: Fagadau Girla Calugar Matrix on the day of sampling, 103 CFU/mL 3,3 3,2 2,5 Matrix after 5 days, 103 CFU/mL 30 10 5 Matrix + L. acidophilus after 5 days, 103 CFU/mL 4725 1805 2625 Thus, under oxygen-deficient conditions, the autochthonous microflora of fish ponds cannot withstand competition with lactobacilli, which are microaerophiles. If the results of the laboratory experiment are confirmed in real conditions, lactobacilli may be recommended for the suppression of autochthonous microflora, which are intensive oxygen consumers in summer biocenoses.

In 2023, the Colombian economy made progress in the macroeconomic adjustment required to achieve growth compatible with its productive capacity and external and price stability. This adjustment was reflected in the beginning of the convergence of inflation towards the target, which closed the year at 9.3%. This adjustment is an important step forward in the Board of Directors’ (BDBR) intention to drive inflation toward its target by mid-2025. Net foreign reserves increased and at the end of 2023 reached USD 59,608.3 million, and Banco de la República’s (the Central Bank of Colombia, Banrep) profit amounted to COP 9,226 billion. International Macroeconomic Environment IMF measurements indicate that global gross domestic product (GDP) growth was reduced from 3.5% in 2022 to 3.1% in 2023, and according to World Bank estimates, from 3.3% to 3.0%. This is due to the contractionary monetary policy of many central banks, fiscal tightening in most advanced countries, and high international uncertainty due to the conflicts between Russia and Ukraine and in the Middle East, among others. Global total inflation moderated in 2023 as a result of lower energy prices, normalization of global supply chains, lower food prices, and reduced demand dynamism in many countries resulting from the synchronized cycle of contractionary monetary policy and less expansionary fiscal policies. Thus, by December 2023, annual inflation for OECD members stood at 6.0%, after the maximum level observed in October 2022 (10.7%). The various international agencies forecast global economic growth for 2024 to be equal to or marginally lower than that recorded in 2023. Thus, according to the IMF, world growth in 2024 would remain unchanged at 3.1%; for the World Bank, it would fall from 3.0% to 2.9%, and according to the OECD, it would decrease from 3.1% to 2.9%. For Latin America and the Caribbean, after an estimated growth of 2.5% in 2023, the IMF forecasts a slowdown to 1.9% in 2024. Economic Activity in Colombia According to the information from DANE (National Administrative Department of Statistics), the Colombian economic growth in 2023 was 0.6%, which was below all forecasts. This slowdown was caused by a combination of factors after recording all-time high growth in 2021 (10.7%) and 2022 (7.3%) that led the GDP to levels higher than those recorded before the pandemic. The reasons for this slowdown include contractionary monetary policy, moderation of expenditure towards levels compatible with the economy's productive capacity, and a lower dynamism of all types of credit. Likewise, the adjustment in public finances related to an increase in tax collection that caused a 4-point decrease in the General Government deficit, the contraction in civil works, and the uncertainty that affected investment decisions. The technical staff's growth projections foresee a moderate expansion in 2024 of around 0.8% and forecast that by 2025, the economy will enter a significant recovery phase, achieving an annual growth of 3.5%. Employment The national unemployment rate decreased in 2023 to 10.4% at the end of the year, driven by the urban area. This was partially offset by the increase in unemployment in other municipalities and the rural area as of the third quarter. Salaried and formal employment was the most dynamic segment during 2023, with an increase of 2.9%. This was reflected in a decrease of the informality rate from 57.1% at the end of 2022 to 55.1% in December 2023, reaching all-time lows. Forecasts on the evolution of the unemployment rate for this year suggest that urban unemployment will average between 9.0% and 12.1%, with 10.5 % being the most likely value. In turn, the national unemployment rate could be between 9.3% and 12.4%, with 10.8% being the most likely value. Inflation and Monetary Policy Annual consumer price inflation in Colombia peaked at 13.34% in March 2023, and as of April, it began a downward trend, reaching a level of 9.28% at the end of 2023. Thereby, the annual inflation rate returned to single-digit territory after 17 months of remaining above 10%. In January 2024, inflation continued to decline, at 8.35% yearly, below the technical staff's expectations. This meant a new and important step forward in the process of inflation convergence towards the target. With clear signs of lower inflationary pressures, the BDBR proceeded to cut the policy rate by 25 bps in each of its December and January sessions, bringing it to 12.75%. Balance of Payments According to the information on the balance of payments the current account deficit during 2023 stood at 2.7% of GDP, 3.5 pp of GDP lower than that recorded in the same period of 2022 (6.2% of GDP). All components of the current account contributed to this correction. The largest adjustment occurred in the trade balance of goods, whose deficit was USD 5,310 million lower than a year ago. This is explained by the significant fall in imports, which exceeded the reduction in the value of exports. By 2024, Banco de la República's technical staff projects a current account deficit close to 3.0% of GDP in an environment of low economic growth and moderate recovery of domestic demand. Public Finances The General Government (GG) deficit was reduced from 6.5% of GDP in 2022 to 2.5% in 2023. This important correction was possible due to the adjustment made in most of the components of this level of government, particularly in the Fuel Price Stabilization Fund (FEPC in Spanish) and in the Central National Government (CNG). In 2023, the CNG achieved a substantial adjustment to its finances due to the increased tax collections derived from the 2021 and 2022 tax reforms, the higher oil revenues, increased dividends from Ecopetrol, and increased profits from Banco de la República. By 2024, the CNG’s total and primary deficits are projected to widen by 5.3% and 0.9% of GDP, respectively. The tax revenues would increase from 16.6% of GDP in 2023 to 17.3% in 2024, reaching an all-time high. Foreign Reserves Net foreign reserves at the end of 2023 totaled USD 59,608.3 m, i.e., an increase of USD 2,339 m during the year. The main factor explaining this increase is the interests received on investments. The return on foreign reserves during 2023, excluding the foreign exchange component, was 4.0% (USD 2,355 m). In the last months of the year, there was an increase in investment prices due to the reduction in short and medium-term interest rates in the main markets in which foreign reserves are invested. The indicators that evaluate foreign reserves suggest that as of December 2023, their level are adequate. Profits of Banco de la República At the end of 2023, the Bank's profit was at an all-time high and amounted to COP 9,226 billion, resulting from revenues of COP 14,798 billion and expenses of COP 5,572 billion. Revenues observed in 2023 were COP 10,350 billion higher than in 2022, mainly due to the yield of foreign reserves. Expenses were COP 2,630 billion higher than those of the previous year, mainly due to the increase in the remuneration of the Colombian Government's deposits in Banrep, given the increases in the interest rate of the monetary policy and higher average balances. For 2024, profit is projected at COP 10,345 billion, higher than that observed for 2023. This result would be the product of revenues of COP 15,620 billion and expenses of COP 5,275 billion.

The main objectives were (1) to develop, implement and validate control procedures that would make it possible to maintain year-round air temperature and humidity at levels suitable for crop cultivation in greenhouses operating in arid and semi-arid regions and (2) to investigate the influence of the operational flexibility of the fogging system on the performance of the system. With respect to the development of climate controllers, we developed a new control approach according to which ventilation is used to maintain the enthalpy of the greenhouse air and fogging is used to adjust the humidity ratio inside the greenhouse. This approach is suitable mostly for greenhouses equipped with mechanized ventilation, and in which the air exchange rate can be controlled with enough confidence. The development and initial validation of the controllers were performed in a small experimental greenhouses located at the Agricultural Research Organization and very good tracking were obtained for both air temperature and relative humidity (maximum mean deviations over a 10-min period with constant setpoints lower than 2.5oC and 5% relative humidity). The robust design approach used to develop the controllers made it possible to transfer successfully these controllers to a much larger semi-commercial greenhouse located in the much drier Arava region. After only minimal adjustments, which did not require lengthy dedicated experiments, satisfactory tracking of the temperature and humidity was achieved, with standard deviation of the tracking error lower than 1oC and 5% for temperature and relative humidity, respectively. These results should help promote the acceptance of modern techniques for designing greenhouse climate controllers, especially since given the large variety of greenhouse structures (shape, size, crop system), developing high performance site-specific controllers for each greenhouse is not feasible. In parallel to this work, a new cooling control strategy, which considers the contribution of humidification and cooling from the crop, was developed for greenhouses equipped with natural ventilation. Prior to the development of the cooling strategy itself, three evapotranspiration models were compared in terms of accuracy and reliability. The cooling strategy that has been developed controls the amount of fog introduced into the greenhouse as well as the percentage of vent openings based on the desired vapor pressure deficit (VPD) and enthalpy, respectively. Numerical simulations were used to compare the performance of the new strategy with a constant fogging rate strategy based on VPD, and on average, the new strategy saved 36% water and consumed 30% less electric energy. In addition, smaller air temperature and relative humidity fluctuations were achieved when using the new strategy. Finally, it was demonstrated that dynamically varying the fog rate and properly selecting the number of nozzles, yields additional water and electricity savings.

Macroeconomic summary Annual inflation continued to rise in the first quarter (8.5%) and again outpaced both market expectations and the technical staff’s projections. Inflation in major consumer price index (CPI) baskets has accelerated year-to-date, rising in March at an annual rate above 3%. Food prices (25.4%) continued to contribute most to rising inflation, mainly affected by a deterioration in external supply and rising costs of agricultural inputs. Increases in transportation prices and in some utility rates (energy and gas) can explain the acceleration in regulated items prices (8.3%). For its part, the increase in inflation excluding food and regulated items (4.5%) would be the result of shocks in supply and external costs that have been more persistent than expected, the effects of indexation, accumulated inflationary pressures from the exchange rate, and a faster-than-anticipated tightening of excess productive capacity. Within the basket excluding food and regulated items, external inflationary pressures have meaningfully impacted on goods prices (6.4%), which have been accelerating since the last quarter of 2021. Annual growth in services prices (3.8%) above the target rate is due primarily to food away from home (14.1%), which was affected by significant increases in food and utilities prices and by a rise in the legal monthly minimum wage. Housing rentals and other services prices also increased, though at rates below 3%. Forecast and expected inflation have increased and remain above the target rate, partly due to external pressures (prices and costs) that have been more persistent than projected in the January report (Graphs 1.1 and 1.2). Russia’s invasion of Ukraine accentuated inflationary pressures, particularly on international prices for certain agricultural goods and inputs, energy, and oil. The current inflation projection assumes international food prices will increase through the middle of this year, then remain high and relatively stable for the remainder of 2022. Recovery in the perishable food supply is forecast to be less dynamic than previously anticipated due to high agricultural input prices. Oil prices should begin to recede starting in the second half of the year, but from higher levels than those presented in the previous report. Given the above, higher forecast inflation could accentuate indexation effects and increase inflation expectations. The reversion of a rebate on value-added tax (VAT) applied to cleaning and hygiene products, alongside the end of Colombia’s COVID-19 health emergency, could increase the prices of those goods. The elimination of excess productive capacity on the forecast horizon, with an output gap close to zero and somewhat higher than projected in January, is another factor to consider. As a consequence, annual inflation is expected to remain at high levels through June. Inflation should then decline, though at a slower pace than projected in the previous report. The adjustment process of the monetary policy rate wouldcontribute to pushing inflation and its expectations toward the target on the forecast horizon. Year-end inflation for 2022 is expected to be around 7.1%, declining to 4.8% in 2023. Economic activity again outperformed expectations. The technical staff’s growth forecast for 2022 has been revised upward from 4.3% to 5% (Graph 1.3). Output increased more than expected in annual terms in the fourth quarter of 2021 (10.7%), driven by domestic demand that came primarily because of private consumption above pre-pandemic levels. Investment also registered a significant recovery without returning to 2019 levels and with mixed performance by component. The trade deficit increased, with significant growth in imports similar to that for exports. The economic tracking indicator (ISE) for January and February suggested that firstquarter output would be higher than previously expected and that the positive demand shock observed at the end of 2021 could be fading slower than anticipated. Imports in consumer goods, retail sales figures, real restaurant and hotel income, and credit card purchases suggest that household spending continues to be dynamic, with levels similar to those registered at the end of 2021. Project launch and housing starts figures and capital goods import data suggest that investment also continues to recover but would remain below pre-pandemic levels. Consumption growth is expected to decelerate over the year from high levels reached over the last two quarters. This would come amid tighter domestic and external financial conditions, the exhaustion of suppressed demand, and a deterioration of available household income due to increased inflation. Investment is expected to continue to recover, while the trade deficit should tighten alongside high oil and other export commodity prices. Given all of the above, first-quarter economic growth is now expected to be 7.2% (previously 5.2%) and 5.0% for 2022 as a whole (previously 4.3%). Output growth would continue to moderate in 2023 (2.9%, previously 3.1%), converging similar to long-term rates. The technical staff’s revised projections suggest that the output gap would remain at levels close to zero on the forecast horizon but be tighter than forecast in January (Graph 1.4). These estimates continue to be affected by significant uncertainty associated with geopolitical tensions, external financial conditions, Colombia’s electoral cycle, and the COVID-19 pandemic. External demand is now projected to grow at a slower pace than previously expected amid increased global inflationary pressures, high oil prices, and tighter international financial conditions than forecast in January. The Russian invasion of Ukraine and its inflationary effects on prices for oil and certain agricultural goods and inputs accentuated existing global inflationary pressures originating in supply restrictions and increased international costs. A decline in the supply of Russian oil, low inventory levels, and continued production limits on behalf of the Organization of Petroleum Exporting Countries and its allies (OPEC+) can explain increased projected oil prices for 2022 (USD 100.8/barrel, previously USD 75.3) and 2023 (USD 86.8/barrel, previously USD 71.2). The forecast trajectory for the U.S. Federal Reserve (Fed) interest rate has increased for this and next year to reflect higher real and expected inflation and positive performance in the labormarket and economic activity. The normalization of monetary policy in various developed and emerging market economies, more persistent supply and cost shocks, and outbreaks of COVID-19 in some Asian countries contributed to a reduction in the average growth outlook for Colombia’s trade partners for 2022 (2.8%, previously 3.3%) and 2023 (2.4%, previously 2.6%). In this context, the projected path for Colombia’s risk premium increased, partly due to increased geopolitical global tensions, less expansionary monetary policy in the United States, an increase in perceived risk for emerging markets, and domestic factors such as accumulated macroeconomic imbalances and political uncertainty. Given all the above, external financial conditions are tighter than projected in January report. External forecasts and their impact on Colombia’s macroeconomic scenario continue to be affected by considerable uncertainty, given the unpredictability of both the conflict between Russia and Ukraine and the pandemic. The current macroeconomic scenario, characterized by high real inflation levels, forecast and expected inflation above 3%, and an output gap close to zero, suggests an increased risk of inflation expectations becoming unanchored. This scenario offers very limited space for expansionary monetary policy. Domestic demand has been more dynamic than projected in the January report and excess productive capacity would have tightened more quickly than anticipated. Headline and core inflation rose above expectations, reflecting more persistent and important external shocks on supply and costs. The Russian invasion of Ukraine accentuated supply restrictions and pressures on international costs. This partly explains the increase in the inflation forecast trajectory to levels above the target in the next two years. Inflation expectations increased again and are above 3%. All of this increased the risk of inflation expectations becoming unanchored and could generate indexation effects that move inflation still further from the target rate. This macroeconomic context also implies reduced space for expansionary monetary policy. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) continues to adjust its monetary policy. In its meetings both in March and April of 2022, it decided by majority to increase the monetary policy rate by 100 basis points, bringing it to 6.0% (Graph 1.5).

In the second quarter, annual inflation (9.67%), the technical staff’s projections and its expectations continued to increase, remaining above the target. International cost shocks, accentuated by Russia's invasion of Ukraine, have been more persistent than projected, thus contributing to higher inflation. The effects of indexation, higher than estimated excess demand, a tighter labor market, inflation expectations that continue to rise and currently exceed 3%, and the exchange rate pressures add to those described above. High core inflation measures as well as in the producer price index (PPI) across all baskets confirm a significant spread in price increases. Compared to estimates presented in April, the new forecast trajectory for headline and core inflation increased. This was partly the result of greater exchange rate pressure on prices, and a larger output gap, which is expected to remain positive for the remainder of 2022 and which is estimated to close towards yearend 2023. In addition, these trends take into account higher inflation rate indexation, more persistent above-target inflation expectations, a quickening of domestic fuel price increases due to the correction of lags versus the parity price and higher international oil price forecasts. The forecast supposes a good domestic supply of perishable foods, although it also considers that international prices of processed foods will remain high. In terms of the goods sub-basket, the end of the national health emergency implies a reversal of the value-added tax (VAT) refund applied to health and personal hygiene products, resulting in increases in the prices of these goods. Alternatively, the monetary policy adjustment process and the moderation of external shocks would help inflation and its expectations to begin to decrease over time and resume their alignment with the target. Thus, the new projection suggests that inflation could remain high for the second half of 2022, closing at 9.7%. However, it would begin to fall during 2023, closing the year at 5.7%. These forecasts are subject to significant uncertainty, especially regarding the future behavior of external cost shocks, the degree of indexation of nominal contracts and decisions made regarding the domestic price of fuels. Economic activity continues to outperform expectations, and the technical staff’s growth projections for 2022 have been revised upwards from 5% to 6.9%. The new forecasts suggest higher output levels that would continue to exceed the economy’s productive capacity for the remainder of 2022. Economic growth during the first quarter was above that estimated in April, while economic activity indicators for the second quarter suggest that the GDP could be expected to remain high, potentially above that of the first quarter. Domestic demand is expected to maintain a positive dynamic, in particular, due to the household consumption quarterly growth, as suggested by vehicle registrations, retail sales, credit card purchases and consumer loan disbursement figures. A slowdown in the machinery and equipment imports from the levels observed in March contrasts with the positive performance of sales and housing construction licenses, which indicates an investment level similar to that registered for the first three months of the year. International trade data suggests the trade deficit would be reduced as a consequence of import levels that would be lesser than those observed in the first quarter, and stable export levels. For the remainder of the year and 2023, a deceleration in consumption is expected from the high levels seen during the first half of the year, partially as a result of lower repressed demand, tighter domestic financial conditions and household available income deterioration due to increased inflation. Investment is expected to continue its slow recovery while remaining below pre-pandemic levels. The trade deficit is expected to tighten due to projected lower domestic demand dynamics, and high prices of oil and other basic goods exported by the country. Given the above, economic growth in the second quarter of 2022 would be 11.5%, and for 2022 and 2023 an annual growth of 6.9% and 1.1% is expected, respectively. Currently, and for the remainder of 2022, the output gap would be positive and greater than that estimated in April, and prices would be affected by demand pressures. These projections continue to be affected by significant uncertainty associated with global political tensions, the expected adjustment of monetary policy in developed countries, external demand behavior, changes in country risk outlook, and the future developments in domestic fiscal policy, among others. The high inflation levels and respective expectations, which exceed the target of the world's main central banks, largely explain the observed and anticipated increase in their monetary policy interest rates. This environment has tempered the growth forecast for external demand. Disruptions in value chains, rising international food and energy prices, and expansionary monetary and fiscal policies have contributed to the rise in inflation and above-target expectations seen by several of Colombia’s main trading partners. These cost and price shocks, heightened by the effects of Russia's invasion of Ukraine, have been more prevalent than expected and have taken place within a set of output and employment recovery, variables that in some countries currently equal or exceed their projected long-term levels. In response, the U.S. Federal Reserve accelerated the pace of the benchmark interest rate increase and rapidly reduced liquidity levels in the money market. Financial market actors expect this behavior to continue and, consequently, significantly increase their expectations of the average path of the Fed's benchmark interest rate. In this setting, the U.S. dollar appreciated versus the peso in the second quarter and emerging market risk measures increased, a behavior that intensified for Colombia. Given the aforementioned, for the remainder of 2022 and 2023, the Bank's technical staff increased the forecast trajectory for the Fed's interest rate and reduced the country's external demand growth forecast. The projected oil price was revised upward over the forecast horizon, specifically due to greater supply restrictions and the interruption of hydrocarbon trade between the European Union and Russia. Global geopolitical tensions, a tightening of monetary policy in developed economies, the increase in risk perception for emerging markets and the macroeconomic imbalances in the country explain the increase in the projected trajectory of the risk premium, its trend level and the neutral real interest rate1. Uncertainty about external forecasts and their consequent impact on the country's macroeconomic scenario remains high, given the unpredictable evolution of the conflict between Russia and Ukraine, geopolitical tensions, the degree of the global economic slowdown and the effect the response to recent outbreaks of the pandemic in some Asian countries may have on the world economy. This macroeconomic scenario that includes high inflation, inflation forecasts, and expectations above 3% and a positive output gap suggests the need for a contractionary monetary policy that mitigates the risk of the persistent unanchoring of inflation expectations. In contrast to the forecasts of the April report, the increase in the risk premium trend implies a higher neutral real interest rate and a greater prevailing monetary stimulus than previously estimated. For its part, domestic demand has been more dynamic, with a higher observed and expected output level that exceeds the economy’s productive capacity. The surprising accelerations in the headline and core inflation reflect stronger and more persistent external shocks, which, in combination with the strength of aggregate demand, indexation, higher inflation expectations and exchange rate pressures, explain the upward projected inflation trajectory at levels that exceed the target over the next two years. This is corroborated by the inflation expectations of economic analysts and those derived from the public debt market, which continued to climb and currently exceed 3%. All of the above increase the risk of unanchoring inflation expectations and could generate widespread indexation processes that may push inflation away from the target for longer. This new macroeconomic scenario suggests that the interest rate adjustment should continue towards a contractionary monetary policy landscape. 1.2. Monetary policy decision Banco de la República’s Board of Directors (BDBR), at its meetings in June and July 2022, decided to continue adjusting its monetary policy. At its June meeting, the BDBR decided to increase the monetary policy rate by 150 basis points (b.p.) and its July meeting by majority vote, on a 150 b.p. increase thereof at its July meeting. Consequently, the monetary policy interest rate currently stands at 9.0% . 1 The neutral real interest rate refers to the real interest rate level that is neither stimulative nor contractionary for aggregate demand and, therefore, does not generate pressures that lead to the close of the output gap. In a small, open economy like Colombia, this rate depends on the external neutral real interest rate, medium-term components of the country risk premium, and expected depreciation. Box 1: A Weekly Indicator of Economic Activity for Colombia Juan Pablo Cote Carlos Daniel Rojas Nicol Rodriguez Box 2: Common Inflationary Trends in Colombia Carlos D. Rojas-Martínez Nicolás Martínez-Cortés Franky Juliano Galeano-Ramírez Box 3: Shock Decomposition of 2021 Forecast Errors Nicolás Moreno Arias

1.1 Macroeconomic summary In September, headline inflation (11.4% annually) and the average of core inflation indicators (8.6% annually) continued on a rising trend, and higher increases than expected were recorded. Forecasts increased again, and inflation expectations remained above 3%. Inflationary surprises in the third quarter were significant and widespread, and they are the result of several shocks. On the one hand, international cost and price shocks, which have mainly affected goods and foods, continue to exert upwards pressure on national inflation. In addition to these external supply shocks, domestic supply shocks have also affected foods. On the other hand, the strong recovery of aggregate demand, especially for private consumption and for machinery and equipment, as well as a higher accumulated depreciation of the Colombian peso and its pass-through to domestic prices also explain the rise in inflation. Indexation also contributes, both through the Consumer Price Index (CPI) and through the Producer Price Index (PPI), which continues to have a significant impact on electricity prices and, to a lesser degree, on other public utilities and rent. In comparison with July’s report, the new forecast trajectory for headline and core inflation (excluding food and regulated items) is higher in the forecast horizon, mainly due to exchange rate pressures, higher excess demand, and indexation at higher inflation rates, but it maintains a trend of convergence towards the target. In the case of food, a good domestic supply of perishable foods and some moderation in international processed food prices are still expected. However, the technical staff estimates higher pressures on this group’s prices from labor costs, raw material prices, and exchange rates. In terms of the CPI for regulated items, the new forecast supposes reductions in electricity prices at the end of the year, but the effects of indexation at higher inflation rates and the expected rises in fuel prices would continue to push this CPI group. Therefore, the new projection suggests that, in December, inflation would reach 11.3% and would decrease throughout 2023 and 2024, closing the year at 7.1% and 3.5%, respectively. These forecasts have a high level of uncertainty, due especially to the future behavior of international financial conditions, external price and cost shocks, the persistence of depreciation of the Colombian peso, the pace of adjustment of domestic demand, the indexation degree of nominal contracts, and the decisions that would be made regarding domestic fuel and electricity prices. Economic activity continues to surprise on the upside, and the projection of growth for 2022 rose from 6.9% to 7.9% but lowered for 2023 from 1.1% to 0.5%. Thus, excess demand is higher than estimated in the previous report, and it would diminish in 2023. Economic growth in the second quarterwas higher than estimated in July due to stronger domestic demand, mainly because of private consumption. Economic activity indicators for the third quarter suggest that the GDP would stay at a high level, above its potential, with an annual change of 6.4%, and 0.6% higher than observed in the second quarter. Nevertheless, these numbers reflect deceleration in its quarterly and annual growth. Domestic demand would show similar behavior, with a high value, higher than that of output. This can be explained partly by the strong behavior of private consumption and investment in machinery and equipment. In the third quarter, investment in construction would have continued with mediocre performance, which would still place it at levels lower than those observed before the pandemic. The trade deficit would have widened due to high imports with a stronger trend than that for exports. It is expected that, in the forecast horizon, consumption would decrease from its current high levels, partly as a consequence of tighter domestic financial conditions, lower repressed demand, higher exchange rate pressures on imported goods prices, and the deterioration of actual income due to the rise in inflation. Investment would continue to lag behind, without reaching the levels observed before the pandemic, in a context of high financing costs and high uncertainty. A lower projected behavior in domestic demand and the high levels of prices for oil and other basic goods that the country exports would be reflected in a reduction in the trade deficit. Due to all of this, economic growth for all of 2022, 2023, and 2024 would be 7.9%, 0.5%, and 1.3%, respectively. Expected excess demand (measured via the output gap) is estimated to be higher than contemplated in the previous report; it would diminish in 2023 and could turn negative in 2024. These estimates remain subject to a high degree of uncertainty related to global political tension, a rise in international interest rates, and the effects of this rise on demand and financial conditions abroad. In the domestic context, the evolution of fiscal policy as well as future measures regarding economic policy and their possible effects on macroeconomic imbalances in the country, among others, are factors that generate uncertainty and affect risk premia, the exchange rate, investment, and the country’s economic activity. Interest rates at several of the world’s main central banks continue to rise, some at a pace higher than expected by the market. This is in response to the high levels of inflation and their inflation expectations, which continue to exceed the targets. Thus, global growth projections are still being moderated, risk premia have risen, and the dollar continues to gain strength against other main currencies. International pressures on global inflation have heightened. In the United States, core inflation has not receded, pressured by the behavior of the CPI for services and a tight labor market. Consequently, the U.S. Federal Reserve continued to increase the policy interest rate at a strong pace. This rate is expected to now reach higher levels than projected in the previous quarter. Other developed and emerging economies have also increased their policy interest rates. Thus, international financial conditions have tightened significantly, which reflects in a widespread strengthening of the dollar, increases in worldwide risk premia, and the devaluation of risky assets. Recently, these effects have been stronger in Colombia than in the majority of its peers in the region. Considering all of the aforementioned, the technical staff of the bank increased its assumption regarding the U.S. Federal Reserve’s interest rate, reduced the country’s external demand growth forecast, and raised the projected trajectory for the risk premium. The latter remains elevated at higher levels than its historical average, within a context of high local uncertainty and of extensive financing needs from the foreign sector and the public sector. All of this results in higher inflationary pressures associated to the depreciation of the Colombian peso. The uncertainty regarding external forecasts and its impact on the country remain elevated, given the unforeseeable evolution of the conflict between Russia and Ukraine, of geopolitical tensions, and of the tightening of external financial conditions, among others. A macroeconomic context of high inflation, inflation expectations and forecasts above 3%, and a positive output gap suggests the need for contractionary monetary policy, compatible with the macroeconomic adjustment necessary to eliminate excess demand, mitigate the risk of unanchoring in inflation expectations, and guarantee convergence of inflation at the target. In comparison with the July report forecasts, domestic demand has been more dynamic, with a higher observed output level that surpasses the economy’s productive capacity. Headline and core inflation have registered surprising rises, associated with the effects of domestic and external price shocks that were more persistent than anticipated, with excess demand and indexation processes in some CPI groups. The country’s risk premium and the observed and expected international interest rates increased. As a consequence of this, inflationary pressures from the exchange rate rose, and in this report, the probability of the neutral real interest rate being higher than estimated increased. In general, inflation expectations for all terms and the bank’s technical staff inflation forecast for 2023 increased again and continue to stray from 3%. All of the aforementioned elevated the risk of unanchoring inflation expectations and could heighten widespread indexation processes that push inflation away from the target for a longer time. In this context, it is necessary to consolidate a contractionary monetary policy that tends towards convergence of inflation at the target in the forecast horizon and towards the reduction of excess demand in order to guarantee a sustainable output level trajectory. 1.2 Monetary policy decision In its September and October of 2022 meetings, Banco de la República’s Board of Directors (BDBR) decided to continue adjusting its monetary policy. In September, the BDBR decided by a majority vote to raise the monetary policy interest rate by 100 basis points (bps), and in its October meeting, unanimously, by 100bps. Therefore, the rate is at 11.0%. Boxes 1 Food inflation: a comparison with other countries

Macroeconomic summary Several factors contributed to an increase in projected inflation on the forecast horizon, keeping it above the target rate. These included inflation in December that surpassed expectations (5.62%), indexation to higher inflation rates for various baskets in the consumer price index (CPI), a significant real increase in the legal minimum wage, persistent external and domestic inflationary supply shocks, and heightened exchange rate pressures. The CPI for foods was affected by the persistence of external and domestic supply shocks and was the most significant contributor to unexpectedly high inflation in the fourth quarter. Price adjustments for fuels and certain utilities can explain the acceleration in inflation for regulated items, which was more significant than anticipated. Prices in the CPI for goods excluding food and regulated items also rose more than expected. This was partly due to a smaller effect on prices from the national government’s VAT-free day than anticipated by the technical staff and more persistent external pressures, including via peso depreciation. By contrast, the CPI for services excluding food and regulated items accelerated less than expected, partly reflecting strong competition in the communications sector. This was the only major CPI basket for which prices increased below the target inflation rate. The technical staff revised its inflation forecast upward in response to certain external shocks (prices, costs, and depreciation) and domestic shocks (e.g., on meat products) that were stronger and more persistent than anticipated in the previous report. Observed inflation and a real increase in the legal minimum wage also exceeded expectations, which would boost inflation by affecting price indexation, labor costs, and inflation expectations. The technical staff now expects year-end headline inflation of 4.3% in 2022 and 3.4% in 2023; core inflation is projected to be 4.5% and 3.6%, respectively. These forecasts consider the lapse of certain price relief measures associated with the COVID-19 health emergency, which would contribute to temporarily keeping inflation above the target on the forecast horizon. It is important to note that these estimates continue to contain a significant degree of uncertainty, mainly related to the development of external and domestic supply shocks and their ultimate effects on prices. Other contributing factors include high price volatility and measurement uncertainty related to the extension of Colombia’s health emergency and tax relief measures (such as the VAT-free days) associated with the Social Investment Law (Ley de Inversión Social). The as-yet uncertain magnitude of the effects of a recent real increase in the legal minimum wage (that was high by historical standards) and high observed and expected inflation, are additional factors weighing on the overall uncertainty of the estimates in this report. The size of excess productive capacity remaining in the economy and the degree to which it is closing are also uncertain, as the evolution of the pandemic continues to represent a significant forecast risk. margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. The technical staff revised its GDP growth projection for 2022 from 4.7% to 4.3% (Graph 1.3). This revision accounts for the likelihood that a larger portion of the recent positive dynamic in private consumption would be transitory than previously expected. This estimate also contemplates less dynamic investment behavior than forecast in the previous report amid less favorable financial conditions and a highly uncertain investment environment. Third-quarter GDP growth (12.9%), which was similar to projections from the October report, and the fourth-quarter growth forecast (8.7%) reflect a positive consumption trend, which has been revised upward. This dynamic has been driven by both public and private spending. Investment growth, meanwhile, has been weaker than forecast. Available fourth-quarter data suggest that consumption spending for the period would have exceeded estimates from October, thanks to three consecutive months that included VAT-free days, a relatively low COVID-19 caseload, and mobility indicators similar to their pre-pandemic levels. By contrast, the most recently available figures on new housing developments and machinery and equipment imports suggest that investment, while continuing to rise, is growing at a slower rate than anticipated in the previous report. The trade deficit is expected to have widened, as imports would have grown at a high level and outpaced exports. Given the above, the technical staff now expects fourth-quarter economic growth of 8.7%, with overall growth for 2021 of 9.9%. Several factors should continue to contribute to output recovery in 2022, though some of these may be less significant than previously forecast. International financial conditions are expected to be less favorable, though external demand should continue to recover and terms of trade continue to increase amid higher projected oil prices. Lower unemployment rates and subsequent positive effects on household income, despite increased inflation, would also boost output recovery, as would progress in the national vaccination campaign. The technical staff expects that the conditions that have favored recent high levels of consumption would be, in large part, transitory. Consumption spending is expected to grow at a slower rate in 2022. Gross fixed capital formation (GFCF) would continue to recover, approaching its pre-pandemic level, though at a slower rate than anticipated in the previous report. This would be due to lower observed GFCF levels and the potential impact of political and fiscal uncertainty. Meanwhile, the policy interest rate would be less expansionary as the process of monetary policy normalization continues. Given the above, growth in 2022 is forecast to decelerate to 4.3% (previously 4.7%). In 2023, that figure (3.1%) is projected to converge to levels closer to the potential growth rate. In this case, excess productive capacity would be expected to tighten at a similar rate as projected in the previous report. The trade deficit would tighten more than previously projected on the forecast horizon, due to expectations of an improved export dynamic and moderation in imports. The growth forecast for 2022 considers a low basis of comparison from the first half of 2021. However, there remain significant downside risks to this forecast. The current projection does not, for example, account for any additional effects on economic activity resulting from further waves of COVID-19. High private consumption levels, which have already surpassed pre-pandemic levels by a large margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. External demand for Colombian goods and services should continue to recover amid significant global inflation pressures, high oil prices, and less favorable international financial conditions than those estimated in October. Economic activity among Colombia’s major trade partners recovered in 2021 amid countries reopening and ample international liquidity. However, that growth has been somewhat restricted by global supply chain disruptions and new outbreaks of COVID-19. The technical staff has revised its growth forecast for Colombia’s main trade partners from 6.3% to 6.9% for 2021, and from 3.4% to 3.3% for 2022; trade partner economies are expected to grow 2.6% in 2023. Colombia’s annual terms of trade increased in 2021, largely on higher oil, coffee, and coal prices. This improvement came despite increased prices for goods and services imports. The expected oil price trajectory has been revised upward, partly to supply restrictions and lagging investment in the sector that would offset reduced growth forecasts in some major economies. Elevated freight and raw materials costs and supply chain disruptions continue to affect global goods production, and have led to increases in global prices. Coupled with the recovery in global demand, this has put upward pressure on external inflation. Several emerging market economies have continued to normalize monetary policy in this context. Meanwhile, in the United States, the Federal Reserve has anticipated an end to its asset buying program. U.S. inflation in December (7.0%) was again surprisingly high and market average inflation forecasts for 2022 have increased. The Fed is expected to increase its policy rate during the first quarter of 2022, with quarterly increases anticipated over the rest of the year. For its part, Colombia’s sovereign risk premium has increased and is forecast to remain on a higher path, to levels above the 15-year-average, on the forecast horizon. This would be partly due to the effects of a less expansionary monetary policy in the United States and the accumulation of macroeconomic imbalances in Colombia. Given the above, international financial conditions are projected to be less favorable than anticipated in the October report. The increase in Colombia’s external financing costs could be more significant if upward pressures on inflation in the United States persist and monetary policy is normalized more quickly than contemplated in this report. As detailed in Section 2.3, uncertainty surrounding international financial conditions continues to be unusually high. Along with other considerations, recent concerns over the potential effects of new COVID-19 variants, the persistence of global supply chain disruptions, energy crises in certain countries, growing geopolitical tensions, and a more significant deceleration in China are all factors underlying this uncertainty. The changing macroeconomic environment toward greater inflation and unanchoring risks on inflation expectations imply a reduction in the space available for monetary policy stimulus. Recovery in domestic demand and a reduction in excess productive capacity have come in line with the technical staff’s expectations from the October report. Some upside risks to inflation have materialized, while medium-term inflation expectations have increased and are above the 3% target. Monetary policy remains expansionary. Significant global inflationary pressures and the unexpected increase in the CPI in December point to more persistent effects from recent supply shocks. Core inflation is trending upward, but remains below the 3% target. Headline and core inflation projections have increased on the forecast horizon and are above the target rate through the end of 2023. Meanwhile, the expected dynamism of domestic demand would be in line with low levels of excess productive capacity. An accumulation of macroeconomic imbalances in Colombia and the increased likelihood of a faster normalization of monetary policy in the United States would put upward pressure on sovereign risk perceptions in a more persistent manner, with implications for the exchange rate and the natural rate of interest. Persistent disruptions to international supply chains, a high real increase in the legal minimum wage, and the indexation of various baskets in the CPI to higher inflation rates could affect price expectations and push inflation above the target more persistently. These factors suggest that the space to maintain monetary stimulus has continued to diminish, though monetary policy remains expansionary. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) in its meetings in December 2021 and January 2022 voted to continue normalizing monetary policy. The BDBR voted by a majority in these two meetings to increase the benchmark interest rate by 50 and 100 basis points, respectively, bringing the policy rate to 4.0%.

From this edition, the Financial Stability Report will have fewer pages with some changes in its structure. The purpose of this change is to present the most relevant facts of the financial system and their implications on the financial stability. This allows displaying the analysis more concisely and clearly, as it will focus on describing the evolution of the variables that have the greatest impact on the performance of the financial system, for estimating then the effect of a possible materialization of these risks on the financial health of the institutions. The changing dynamics of the risks faced by the financial system implies that the content of the Report adopts this new structure; therefore, some analyses and series that were regularly included will not necessarily be in each issue. However, the statistical annex that accompanies the publication of the Report will continue to present the series that were traditionally included, regardless of whether or not they are part of the content of the Report. In this way we expect to contribute in a more comprehensive way to the study and analysis of the stability of the Colombian financial system. Executive Summary During the first half of 2015, the main advanced economies showed a slow recovery on their growth, while emerging economies continued with their slowdown trend. Domestic demand in the United States allowed for stabilization on its average growth for the first half of the year, while other developed economies such as the United Kingdom, the euro zone, and Japan showed a more gradual recovery. On the other hand, the Chinese economy exhibited the lowest growth rate in five years, which has resulted in lower global dynamism. This has led to a fall in prices of the main export goods of some Latin American economies, especially oil, whose price has also responded to a larger global supply. The decrease in the terms of trade of the Latin American economies has had an impact on national income, domestic demand, and growth. This scenario has been reflected in increases in sovereign risk spreads, devaluations of stock indices, and depreciation of the exchange rates of most countries in the region. For Colombia, the fall in oil prices has also led to a decline in the terms of trade, resulting in pressure on the dynamics of national income. Additionally, the lower demand for exports helped to widen the current account deficit. This affected the prospects and economic growth of the country during the first half of 2015. This economic context could have an impact on the payment capacity of debtors and on the valuation of investments, affecting the soundness of the financial system. However, the results of the analysis featured in this edition of the Report show that, facing an adverse scenario, the vulnerability of the financial system in terms of solvency and liquidity is low. The analysis of the current situation of credit institutions (CI) shows that growth of the gross loan portfolio remained relatively stable, as well as the loan portfolio quality indicators, except for microcredit, which showed a decrease in these indicators. Regarding liabilities, traditional sources of funding have lost market share versus non-traditional ones (bonds, money market operations and in the interbank market), but still represent more than 70%. Moreover, the solvency indicator remained relatively stable. As for non-banking financial institutions (NBFI), the slowdown observed during the first six months of 2015 in the real annual growth of the assets total, both in the proprietary and third party position, stands out. The analysis of the main debtors of the financial system shows that indebtedness of the private corporate sector has increased in the last year, mostly driven by an increase in the debt balance with domestic and foreign financial institutions. However, the increase in this latter source of funding has been influenced by the depreciation of the Colombian peso vis-à-vis the US dollar since mid-2014. The financial indicators reflected a favorable behavior with respect to the historical average, except for the profitability indicators; although they were below the average, they have shown improvement in the last year. By economic sector, it is noted that the firms focused on farming, mining and transportation activities recorded the highest levels of risk perception by credit institutions, and the largest increases in default levels with respect to those observed in December 2014. Meanwhile, households have shown an increase in the financial burden, mainly due to growth in the consumer loan portfolio, in which the modalities of credit card, payroll deductible loan, revolving and vehicle loan are those that have reported greater increases in risk indicators. On the side of investments that could be affected by the devaluation in the portfolio of credit institutions and non-banking financial institutions (NBFI), the largest share of public debt securities, variable-yield securities and domestic private debt securities is highlighted. The value of these portfolios fell between February and August 2015, driven by the devaluation in the market of these investments throughout the year. Furthermore, the analysis of the liquidity risk indicator (LRI) shows that all intermediaries showed adequate levels and exhibit a stable behavior. Likewise, the fragility analysis of the financial system associated with the increase in the use of non-traditional funding sources does not evidence a greater exposure to liquidity risk. Stress tests assess the impact of the possible joint materialization of credit and market risks, and reveal that neither the aggregate solvency indicator, nor the liquidity risk indicator (LRI) of the system would be below the established legal limits. The entities that result more individually affected have a low share in the total assets of the credit institutions; therefore, a risk to the financial system as a whole is not observed. José Darío Uribe Governor

In the first quarter of 2024, the figures of the National Administrative Department of Statistics (DANE in Spanish) showed that the economy achieved annual growth of 0.9%. Although this result was moderate, it confirmed the economy's recovery path. Monetary policy has played a critical role in containing inflationary pressures. This has allowed inflation to trend downwards, continuing into the first half of 2024. Net foreign reserves totaled USD 60,901 million as of 30 June 2024, a slight increase over the course of the year. For 2024, the profit of Banco de la República (the Central Bank of Colombia) is projected at COP 8,795 billion. International macroeconomic environment The global economy would continue to grow in 2024 at a rate slightly higher than 3.0%, according to forecasts from the International Monetary Fund (3.2%) and the Organization for Economic Cooperation and Development (3.1%). This dynamic is lower than the pre-pandemic historical average due to the long-term consequences of COVID-19, Russia’s invasion of Ukraine, and growing geoeconomic fragmentation, among other reasons. Various advanced and emerging economies, particularly the United States and some Asian countries, have seen favorable growth due to strong aggregate demands, dynamic private consumption, and high public spending. Meanwhile, inflation has been on a downward trend, but with values exceeding the goals of its central banks. In several developing countries, inflationary pressures have been significant due to the transfer of high international food, energy, and fertilizer costs and higher-than-expected currency declines. These factors have affected growth in these economies amid tight monetary policies. Economic activity in Colombia In the first quarter of 2024, DANE figures showed that the economy achieved annual growth of 0.9%. Although the result was moderate, it confirmed the economy's recovery path after the annual contraction in the third quarter of 2023 (-0.7%), followed by 0.4% annual growth in the last quarter of the previous year. On the expenditure side, the annual growth seen in the first quarter of 2024 was driven by net external demand, given an annual drop in imports (-13.3%) and an annual increase in exports (2.4%). On the supply side, the agriculture sector, public administration, health and education services, and arts and entertainment activities grew the most annually. The tight monetary policy and higher tax rates that characterized the 2023 adjustment continued to impact the economy's aggregate spending, which was also affected by low levels of business and consumer confidence. During the second quarter, the economy would have continued to increase its growth rate, driven by the good performance of the agriculture sector and the dynamics of some services related to public administration, health, education, and entertainment. Banco de la República’s (Banrep) technical staff expects that in the second half of the year, the economy will continue to gradually improve its dynamics to achieve growth of around 1.8% throughout 2024 and approach its potential growth in 2025. Employment Early 2024 saw unemployment rate increases driven by deteriorating employment, after which this indicator has remained relatively stable. Thus, between December 2023 and May 2024, the unemployment rate for the domestic aggregate rose 0.2 percentage points (pp) to reach 10.5% in May. The number of employed people remained relatively stable for the domestic aggregate, with levels close to 22.9 million (m) jobs. The reduction in salaried employment, coupled with recent growth in the non-salaried segment, explains the increased informality rate. This rate stood at 56.2% in May 2024, one percentage point higher than in December 2023. Inflation and Monetary Policy Headline inflation in June was 7.2%, lower than that seen in December (9.3%) and well below the high level reached in March 2023 (13.3%). The downward trend in inflation has primarily resulted from tight monetary policy carried out by the Board of Directors of Banco de la República (BDBR) through progressive increases in the benchmark interest rate initiated as of September 2021. The BDBR’s decision to undertake a monetary policy easing cycle as of last December was based on the downward trend that annual inflation had been exhibiting since April 2023 and evidence that tight monetary policy was meeting its goal of reducing excess spending in the economy. A cumulative 2.5 percentage point policy interest rate cut was completed by July 2024, bringing it to 10.75%. Balance of payments As a share of quarterly gross domestic product (GDP), the current account deficit of the balance of payments decreased from 3.7% of GDP in the first quarter of 2023 to 1.9% in the first quarter of this year. The decrease in the current account deficit balance was explained by the favorable variation in factor income, the services trade balance, and net income from current transfers. By 2024, the technical staff projects a current account deficit close to 2.8% of GDP, moderately higher than the 2.5% deficit observed in 2023 and significantly lower than the 6.1% deficit of GDP recorded in 2022. The smaller current account deficit makes the Colombian economy less vulnerable to negative external shocks. Public finance The 2024 Medium-Term Fiscal Framework (MTFF-24), presented by the Ministry of Finance in mid-June, shows that the General Government produced a 2.7% deficit of GDP in 2023, which means a reduction of 3.6 pp vis-a-vis 2022. This adjustment is explained by the improvement in the balances of the social security sub-sector, of the rest of the central level to which the Fuel Price Stabilization Fund (FEPC in Spanish) belongs, and of the Central National Government (CNG). The surplus of the FEPC, which closed at 0.4% of GDP in 2023, stands out in contrast to the 1.3% deficit registered a year earlier. The adjustment of the CNG’s public finances in 2023 was supported by the boost in tax collection derived from the reforms approved in 2021 and 2022, as well as by the good dynamics of economic and oil activity in those years. According to the MTFF-24, in 2023, the CNG's fiscal deficit and net debt reached 4.3% and 53.8% of GDP, respectively. MTFF-24’s fiscal deficit forecasts are consistent with compliance with the fiscal rule. However, as stated by the Independent Fiscal Rule Committee (CARF in Spanish), there are risks around collection and spending expectations. Foreign reserves Net foreign reserves totaled USD 60,901 m as of 30 June 2024, an increase of USD 1,293 m over the course of the year. This increase is primarily due to the program to accumulate international reserves announced by the BDBR in December 2023. The return on the foreign reserves for the year, excluding the foreign exchange component, amounts to 1.43% (USD 864 m). This result is mainly explained by higher interest rates, which have positively impacted the return on foreign reserves. An economy is considered to maintain adequate reserve levels if, among other indicators, the ratio of the reserves to the appropriate level is between 1.0 and 1.5. With information available as of June 2024, the ARA calculated for Colombia by the IMF was 1.24. Profits of Banco de la República Banco de la República's profit at the end of the first half of 2024 amounted to COP 4,088 billion (b), as a result of revenues of COP 5,903 b and expenses of COP 1,815 b. This profit was COP 39 b higher than that recorded in the same period of 2023. Revenues during this period were mainly due to the yield on foreign reserves, which amounted to COP 3,770 b, with an increase of COP 237 b compared to that received in the first half of the previous year. Expenses originated mainly from the remuneration on national government deposits in Banrep, which amounted to COP 683 b with a reduction of COP 812 b compared to the first half of 2023, mainly due to the lower average balances held in Banrep. For 2024, a profit of COP 8,795 b is projected, COP 431 b lower than that observed in 2023. This estimate has a high degree of uncertainty, taking into account the risks associated with the evolution of foreign reserves yield and the growth and sources of expansion of the monetary base. Boxes Box 1: Comments of Banco de la República (the Central Bank of Colombia) regarding its appointment as Administrator of Reserve Fund of the Contributory Pillar - Report of the Board of Directors to the Congress of Colombia, July 2024 Law 2381 of 2024, “Whereby the Comprehensive Social Protection System for Old Age Disability, and Death (Sistema de Protección Social Integral para la Vejez, Invalidez y Muerte, in Spanish) of common origin is established, and other provisions are issued,” creates the Reserve Fund of the Contributory Pillar (Fondo de Ahorro del Pilar Contributivo, in Spanish), hereinafter the Fund, and assigns its administration to Banco de la República (Banrep). This box highlights the main issues involved in the designation of Banrep as the Fund’s administrator within the framework of its constitutional functions: Box 2: Determinants of the Speed of Adjustment of the MPR Box 3: Primary Liquidity Supply by Banco de la República, 2023-2024

Inflation continues to fall, but it is above the 3% target, and it is projected to continue falling until it reaches it in 2025. Economic growth is low, but it would recover, and by 2025, economic activity would reach a path that can be sustained over time without causing unwanted changes in inflation, employment, or the external balance. The current monetary policy interest rate is compatible with the convergence of inflation to the target in 2025 and with the recovery of economic growth in the next two years. • Annual inflation has been decreasing for a year and is projected to continue, with inflation at 5.5% in December and the 3% target to be reached in 2025. In March, total inflation was 7.4% and completed a year of reductions from the maximum recorded a year ago (13.3%). In the first quarter of this year, all the main components of inflation fell (food, services, goods, and regulated). • The decrease in inflation has been greater than expected due to the behavior of food prices and some goods. • The lower pressures of the exchange rate on prices, the slowdown in demand, and the completion of adjustments in fuel prices contributed to reducing inflation. • The reduction in inflation has been limited by the rise in some service rates, largely because several of these were updated with the high inflation observed (what is known as indexing). • The accumulated effect of monetary policy actions, weak demand in the presence of excess productive capacity of the economy, and an exchange rate behavior that would continue to exert downward pressures on prices will continue to contribute to the decrease in inflation and its convergence towards the 3% target. • There are some risks that could reduce inflation more slowly than projected, such as possible pent-up increases in public services and transport rates, an unexpected increase in the exchange rate and/or adverse weather conditions that affect food prices. The economy would recover in 2024, and by the end of the following year, it would reach a path that would not cause unwanted changes in inflation, employment, or the country’s external balance. • After the significant economic growth in 2022 (7.3%) that placed the GDP at high levels, the expansion of economic activity for 2023 was 0.6%. In the first quarter of 2024, the economy would have improved compared to what was observed at the end of 2023, driven by high levels of activity in the agricultural sector that reflect the high supply recorded in these months. • The necessary adjustment of economic activity occurred amid the accumulated effects of monetary policy actions to combat high inflation, high external financing costs, and low levels in businessmen’s and consumers’ confidence indicators. • The labor market continues to show unemployment rates at low levels compared to its history, although with deteriorations in employment in recent months. • Going forward, economic activity would continue to recover. This would occur in an environment of less restrictive external financing conditions, and reductions in the monetary policy interest rate, as inflation gradually approaches the 3% target. o For 2024, economic growth of 1.4% is projected, driven by consumption and despite a weak expected investment performance. o For 2025, growth would be 3.2%, with consumption that would continue to improve, an investment that would recover from the very low levels of 2024, and a gradual recovery of exports. • The lower growth of the Colombian economy has been reflected in a reduction of the broad external imbalance observed in 2022, which results in less vulnerability to changes in international conditions. Given the decline in inflation and its expectations, the slowing of domestic demand, and a more sustainable external balance, the Board of Directors of the Banco de la República decided at its April meeting to continue the monetary policy interest rate reductions, bringing it to 11.75%. • The stance of monetary policy has contributed to ameliorating the country’s macroeconomic imbalances, such as high inflation, excess spending and credit, and the wide external deficit. • In the context of decreasing inflation and adjusting some macroeconomic imbalances, the Board of Directors began to reduce the monetary policy interest rate from December 2023, with a total reduction of 150 basis points by April. • The current monetary policy interest rate is compatible with inflation, reaching the 3% target in 2025 and sustainable economic growth over time. Box 1 - Un indicador de los servicios de transporte para medir la actividad económica colombiana Autores: Karen L. Pulido-Mahecha, Juan Sebastián Silva-Rodríguez y Juan Felipe Carmona-Pascuales Box 2 - Evolución reciente y perspectivas de la inversión Autores: Camilo López, Andrés Herrera, Nicol Rodríguez y Sebastián Quintero Box 3 - Evaluación del error de pronóstico macroeconómico de 2023 Autores: Jonathan Alexander Muñoz Martínez y Julián Mauricio Pérez Amaya

1. Macroeconomic Summary In December, headline inflation (13.1%) and the average of the core inflation measures (10.3%) continued to trend upward, posting higher rates than those estimated by the Central Bank's technical staff and surpassing the market average. Inflation expectations for all terms exceeded the 3.0% target. In that month, every major group in the Consumer Price Index (CPI) registered higher-than-estimated increases, and the diffusion indicators continued to show generalized price hikes. Accumulated exchange rate pressures on prices, indexation to high inflation rates, and several food supply shocks would explain, in part, the acceleration in inflation. All of this is in a context of significant surplus demand, a tight labor market, and inflation expectations at different terms that exceed the 3.0% target. Compared to the October edition of the Monetary Policy Report, the forecast path for headline and core inflation (excluding food and regulated items: EFR) increased (Graphs 1.1 and 1.2), reflecting heightened accumulated exchange rate pressures, price indexation to a higher inflation rate (CPI and the producer price index: PPI), and the rise in labor costs attributed to a larger-than-estimated adjustment in the minimum wage. Nevertheless, headline inflation is expected to begin to ease by early 2023, although from a higher level than had been estimated in October. This would be supported initially by the slowdown forecast for the food CPI due to a high base of comparison, the end anticipated for the shocks that have affected the prices of these products, and the estimated improvement in external and domestic supply in this sector. In turn, the deterioration in real household income because of high inflation and the end of the effects of pent-up demand, plus tighter external and domestic financial conditions would contribute to diluting surplus demand in 2023 and reducing inflation. By the end of 2023, both headline and core (EFR) inflation would reach 8.7% and would be 3.5% and 3.8%, respectively, by December 2024. These forecasts are subject to a great deal of uncertainty, especially concerning the future behavior of international financial conditions, the evolution of the exchange rate, the pace of adjustment in domestic demand, the extent of indexation of nominal contracts, and the decisions taken regarding the domestic price of fuel and electricity. In the third quarter, economic activity surprised again on the upside and the growth projection for 2022 rose to 8.0% (previously 7.9%). However, it declined to 0.2% for 2023 (previously 0.5%). With this, surplus demand continues to be significant and is still expected to weaken during the current year. Annual economic growth in the third quarter (7.1 % SCA)1 was higher than estimated in October (6.4 % SCA), given stronger domestic demand specifically because of higher-than-expected investment. Private consumption fell from the high level witnessed a quarter earlier and net exports registered a more negative contribution than anticipated. For the fourth quarter, economic activity indicators suggest that gross domestic product (GDP) would have remained high and at a level similar to that observed in the third quarter, with an annual variation of 4.1%. Domestic demand would have slowed in annual terms, although at levels that would have remained above those for output, mainly because of considerable private consumption. Investment would have declined slightly to a value like the average observed in 2019. The real trade deficit would have decreased due to a drop in imports that was more pronounced than the estimated decline in exports. On the forecast horizon, consumption is expected to decline from current elevated levels, partly because of tighter domestic financial conditions and a deterioration in real income due to high inflation. Investment would also weaken and return to levels below those seen before the pandemic. In real terms, the trade deficit would narrow due to a lower momentum projection for domestic demand and higher cumulative real depreciation. In sum, economic growth for all of 2022, 2023, and 2024 would stand at 8.0%, 0.2% and 1.0%, respectively (Graph 1.3). Surplus demand remains high (as measured by the output gap) and is expected to decline in 2023 and could turn negative in 2024 (Graph 1.4). Although the macroeconomic forecast includes a marked slowdown in the economy, an even greater adjustment in domestic absorption cannot be ruled out due to the cumulative effects of tighter external and domestic financial conditions, among other reasons. These estimates continue to be subject to a high degree of uncertainty, which is associated with factors such as global political tensions, changes in international interest rates and their effects on external demand, global risk aversion, the effects of the approved tax reform, the possible impact of reforms announced for this year (pension, health, and labor reforms, among others), and future measures regarding hydrocarbon production. In 2022, the current account deficit would have been high (6.3 % of GDP), but it would be corrected significantly in 2023 (to 3.9 % of GDP) given the expected slowdown in domestic demand. Despite favorable terms of trade, the high external imbalance that would occur during 2022 would be largely due to domestic demand growth, cost pressures associated with high freight rates, higher external debt service payments, and good performance in terms of the profits of foreign companies.2 By 2023, the adjustment in domestic demand would be reflected in a smaller current account deficit especially due to fewer imports, a global moderation in prices and cost pressures, and a reduction in profits remitted abroad by companies with foreign direct investment (FDI) focused on the local market. Despite this anticipated correction in the external imbalance, its level as a percentage of GDP would remain high in the context of tight financial conditions. In the world's main economies, inflation forecasts and expectations point to a reduction by 2023, but at levels that still exceed their central banks' targets. The path anticipated for the Federal Reserve (Fed) interest rate increased and the forecast for global growth continues to be moderate. In the fourth quarter of 2022, logistics costs and international prices for some foods, oil and energy declined from elevated levels, bringing downward pressure to bear on global inflation. Meanwhile, the higher cost of financing, the loss of real income due to high levels of global inflation, and the persistence of the war in Ukraine, among other factors, have contributed to the reduction in global economic growth forecasts. In the United States, inflation turned out to be lower than estimated and the members of the Federal Open Market Committee (FOMC) reduced the growth forecast for 2023. Nevertheless, the actual level of inflation in that country, its forecasts, and expectations exceed the target. Also, the labor market remains tight, and fiscal policy is still expansionary. In this environment, the Fed raised the expected path for policy interest rates and, with this, the market average estimates higher levels for 2023 than those forecast in October. In the region's emerging economies, country risk premia declined during the quarter and the currencies of those countries appreciated against the US dollar. Considering all the above, for the current year, the Central Bank's technical staff increased the path estimated for the Fed's interest rate, reduced the forecast for growth in the country's external demand, lowered the expected path of oil prices, and kept the country’s risk premium assumption high, but at somewhat lower levels than those anticipated in the previous Monetary Policy Report. Moreover, accumulated inflationary pressures originating from the behavior of the exchange rate would continue to be important. External financial conditions facing the economy have improved recently and could be associated with a more favorable international context for the Colombian economy. So far this year, there has been a reduction in long-term bond interest rates in the markets of developed countries and an increase in the prices of risky assets, such as stocks. This would be associated with a faster-than-expected reduction in inflation in the United States and Europe, which would allow for a less restrictive course for monetary policy in those regions. In this context, the risks of a global recession have been reduced and the global appetite for risk has increased. Consequently, the risk premium continues to decline, the Colombian peso has appreciated significantly, and TES interest rates have decreased. Should this trend consolidate, exchange rate inflationary pressures could be less than what was incorporated into the macroeconomic forecast. Uncertainty about external forecasts and their impact on the country remains high, given the unpredictable course of the war in Ukraine, geopolitical tensions, local uncertainty, and the extensive financing needs of the Colombian government and the economy. High inflation with forecasts and expectations above 3.0%, coupled with surplus demand and a tight labor market are compatible with a contractionary stance on monetary policy that is conducive to the macroeconomic adjustment needed to mitigate the risk of de-anchoring inflation expectations and to ensure that inflation converges to the target. Compared to the forecasts in the October edition of the Monetary Policy Report, domestic demand has been more dynamic, with a higher observed level of output exceeding the productive capacity of the economy. In this context of surplus demand, headline and core inflation continued to trend upward and posted surprising increases. Observed and expected international interest rates increased, the country’s risk premia lessened (but remains at high levels), and accumulated exchange rate pressures are still significant. The technical staff's inflation forecast for 2023 increased and inflation expectations remain well above 3.0%. All in all, the risk of inflation expectations becoming unanchored persists, which would accentuate the generalized indexation process and push inflation even further away from the target. This macroeconomic context requires consolidating a contractionary monetary policy stance that aims to meet the inflation target within the forecast horizon and bring the economy's output to levels closer to its potential. 1.2 Monetary Policy Decision At its meetings in December 2022 and January 2023, Banco de la República’s Board of Directors (BDBR) agreed to continue the process of normalizing monetary policy. In December, the BDBR decided by a majority vote to increase the monetary policy interest rate by 100 basis points (bps) and in its January meeting by 75 bps, bringing it to 12.75% (Graph 1.5). 1/ Seasonally and calendar adjusted. 2/ In the current account aggregate, the pressures for a higher external deficit come from those companies with FDI that are focused on the domestic market. In contrast, profits in the mining and energy sectors are more than offset by the external revenue they generate through exports. Box 1 - Electricity Rates: Recent Developments and Indexation. Author: Édgar Caicedo García, Pablo Montealegre Moreno and Álex Fernando Pérez Libreros Box 2 - Indicators of Household Indebtedness. Author: Camilo Gómez y Juan Sebastián Mariño