Colombia’s Turnaround: How Rate Cuts and Fiscal Reforms Are Igniting Growth in Undervalued Sectors

Colombia’s economy is at a pivotal juncture. After years of sluggish growth, the country’s GDP expanded by 2.7% in Q1 2025, marking a sharp acceleration from the 2.1% growth in Q2 2024. This resurgence, driven by stronger domestic demand and a gradual retreat from inflation, is now set to intersect with a historic shift in monetary policy. With the central bank poised to cut rates by 400 basis points (bps) by year-end, investors are presented with a rare opportunity to capitalize on undervalued equities and bonds in sectors like construction, manufacturing, and tech—areas that have been held back by regulatory uncertainty but could now thrive.

The Macroeconomic Backdrop: A Catalyst for Change

Colombia’s central bank, the Banco de la República, has embarked on a cautious but steady path of easing after years of restrictive policies. The benchmark rate, currently at 9.25%, is projected to drop to 5.25% by December 2025, as inflation—now at 5.1%—gradually converges to the 3% target by late 2026. This easing cycle, paired with anticipated fiscal reforms to streamline regulations and boost investor confidence, creates a perfect storm for sectors starved of capital.

Sector Spotlight: Where to Invest Now

Construction: Infrastructure Boom Ahead

Colombia’s construction sector has lagged due to red tape, lengthy permitting processes, and high borrowing costs. However, the government’s $15 billion infrastructure plan—funded partly by private-public partnerships—could unlock projects ranging from highways to renewable energy grids. With borrowing costs set to plummet, developers will finally gain access to affordable capital.

Investors should target firms like Construcciones y Contracting S.A. (CCS), which specializes in infrastructure, and Empresas Públicas de Medellín (EPM), involved in energy and utilities. Both are trading at 10–15% below their 5-year averages, offering a compelling entry point.

Manufacturing: Rebuilding Competitiveness

Manufacturing has been hamstrung by global trade volatility and high input costs. Yet lower rates and a weaker Colombian peso (COP) could reignite export-driven growth. Sectors like textiles, agro-industrial processing, and automotive parts—key components of Colombia’s $76 billion manufacturing output—are poised for a rebound.

Companies like Siderúrgica del Pacifico (SIDERURGICA), a steelmaker, and Alpina Foods, a consumer goods giant, are undervalued and positioned to benefit from cost reductions and a more competitive currency.

Tech: The Undiscovered Frontier

Colombia’s tech sector is a sleeper play. While startups like Rappi and Drogueria En Línea have gained traction, broader adoption of digital infrastructure—driven by government initiatives to modernize public services—is still in its infancy. Lower borrowing costs could fuel investment in cloud computing, fintech, and smart logistics, areas where Colombia’s tech unicorns are already leading.

Fiscal Reforms: The Final Piece of the Puzzle

Regulatory overhang remains a hurdle. But the government’s push to simplify environmental and labor laws—aimed at reducing delays in project approvals—could finally clear the path for investment. A 2025 fiscal framework targeting a primary surplus of 0.5% of GDP by 2026 also signals fiscal discipline, reducing inflation risks and attracting foreign capital.

Risks to Consider

• Inflation surprises: A resurgence in regulated-sector prices (e.g., utilities) could delay rate cuts.
• Global headwinds: U.S. trade policy and commodity price fluctuations remain risks.
• Regulatory slippage: Delays in reforms could prolong sector underperformance.

Why Act Now?

The contrarian opportunity is clear: sector valuations are depressed, but fundamentals are improving. Bonds in construction and manufacturing—offering yields of 6–8%—are pricing in worst-case scenarios, while equities trade at 10–15% discounts to regional peers.

Conclusion: A Buy Signal for Colombia’s Undervalued Sectors

The combination of aggressive rate cuts, fiscal discipline, and pent-up demand in construction, manufacturing, and tech makes Colombia a standout opportunity. For investors willing to act now, these sectors offer asymmetric upside—cheap valuations, improving macro conditions, and a government eager to attract capital.

The clock is ticking. With the next rate cut likely in July 2025, now is the time to position for Colombia’s next growth chapter.

Action Items:
1. Equities: Overweight Colombian construction (CCS, EPM), manufacturing (SIDERURGICA, Alpina Foods), and tech ETFs (e.g., COLT40).
2. Bonds: Target corporate bonds in these sectors, particularly those tied to infrastructure projects.
3. Currency: Pair investments with a long COP position, as lower rates and fiscal stability could stabilize the currency.

The tailwinds are aligning—don’t miss the boat.