Colombia: Economic momentum broadly sustained in Q3
According to the latest GDP data released by the National Statistical Institute (DANE) on 22 November, the economy grew at broadly the same pace in the third quarter as it did in the second, dipping just marginally. In annual terms, GDP accelerated 2.7% in Q3, inching down from the previous quarter’s 2.8% which had marked the fastest pace of growth since Q1 2016.
On the domestic side of the economy, private consumption growth accelerated from 2.7% in Q2 to 3.2% in Q3 as subdued inflationary pressures shored up households’ purchasing power. On the other hand, fixed investment growth tumbled to 0.7% in Q3, down from 2.3% in Q2, as financing conditions became less favorable. The downturn in this component reflected contractions in the investment of housing, along with machinery and equipment. Moreover, government consumption rose at a slower pace of 4.5% in Q3, down from 5.9% in Q2, as the government continued to strengthen fiscal consolidation measures.
Turning to the external sector, export growth fell from 3.0% in the second quarter to 1.2% in the third quarter, as global demand slowed owing to heightened tensions between the U.S. and China, coupled with political uncertainties. Imports also lost some steam, growing 5.1% in Q3 from 5.7% in Q2. Thus, the overall contribution of the external sector remained negative.
In seasonally-adjusted, quarter-on-quarter terms, growth continued to weaken from 0.6% in the second quarter to 0.2% in the third quarter. While economic activity is expected to remain strong, thanks to improving domestic demand and higher projected global oil prices, lingering uncertainties around the new tax reform bill present challenges to achieving the fiscal consolidation goals and continue to pose downside risks to the growth outlook.
Commenting on the Colombian economy’s prospects for next year, Daniel Velandia, chief economist at Credicorp Capital, stated:
“The Colombian economy is set to continue accelerating along 2019 led by higher investment. That said, the final outcome of the tax bill currently under discussion in Congress will be key to assess any potential, short-term impact on economic growth, particularly on private consumption as individual taxes will be increased. Favorably, the proposal of broadening the VAT to basic goods has been removed from the bill, easing concerns about a strong potential effect on inflation and consumption next year. In any case, seeking resources for the upcoming years remains the main challenge of fiscal policy as the fiscal path is demanding.”