(Adds details, quotes from report)
By Nelson Bocanegra
BOGOTA, May 5 (Reuters) - Colombia’s economy will contract between 2% and 7% this year, due to the impact on productivity of a coronavirus quarantine and the shock caused by falling oil prices, the central bank’s technical team predicted.
In the second quarter alone, the country’s gross domestic product (GDP) will fall between 10% to 15% on a year-on-year basis, in comparison to the 2% growth likely seen in the first quarter, the bank said in its monetary policy report released late on Monday.
The bank said its projections are subject to numerous uncertainties, including the coronavirus infection rate and possible further fiscal and health measures that could affect economic activity. There have been no previous joint economic shocks similar to the current situation, it said.
“Parallel with the COVID-19 phenomenon, the country has had to confront a strong fall in the price of oil which ... is a second shock whose duration also is uncertain and equally should have negative consequences on growth via the dynamic of national income, investment and public spending,” the report said, referring to the respiratory illness caused by the novel coronavirus.
President Ivan Duque has decreed a nearly two-month quarantine in the Andean country set to last until May 11. The shuttering of much of the economy led to a jump in urban unemployment to 13.4% in March.
On Monday, Colombia’s finance ministry projected an economic contraction of 5.5% for this year, a revision from its previous estimate of a contraction of 1.5% to 2%.
In response, the Fiscal Rule Advisory Committee late on Monday widened the government deficit limit for 2020 to 6.1% of GDP.
The country’s inflation measure will end 2020 at between 1% and 3% and reach the long-term target of 3% at the close of 2021, the report said.
“Factors like the fall in confidence and in household incomes, in an environment of high unemployment probability, will keep demand depressed for a time ... which will limit the increase of prices in general,” the bank said.
The technical team “foresees the need to significantly relax the monetary position,” the report said, a signal further interest rate cuts may be on the horizon.
The bank cut its key interest rate by a total of 100 basis points at its March and April meetings, taking it to 3.25% in an effort to relieve pressure on borrowers. It has also announced some $7.5 billion in liquidity measures.
The current account deficit will be between 2% and 5% of GDP this year, the report said. The country had a deficit of 4.3% of GDP last year. (Reporting by Nelson Bocanegra Writing by Julia Symmes Cobb and Oliver Griffin Editing by Chizu Nomiyama and Paul Simao)