Colombia: Economy accelerates slightly in Q4, rounding off 2018 on a strong note
According to the latest national accounts data released by the National Statistical Institute (DANE) on 28 February, the economy ended 2018 on a solid note, speeding up slightly in the final quarter. GDP grew 2.8% year-on-year in Q4, marginally up from Q3’s 2.7% annual expansion. There was a marked upturn in full-year growth, with the economy growing at almost double the pace in 2018 compared to the previous year (2018: +2.7%; 2017: +1.4%). However, in seasonally-adjusted, quarter-on-quarter terms, the pace of expansion weakened to 0.6% over the previous quarter in Q4 (Q3: +0.8 quarter-on-quarter).
Stronger domestic demand dynamics fueled the year-on-year acceleration, growing 4.5% in Q4 (Q3: +4.1%) to mark the fourth consecutive quarterly expansion. Most notably, fixed investment growth gained considerable steam, doubling from the previous period (Q4: +2.8% year-on-year; Q3: +1.4 yoy). The upturn reflected a marked rebound in property investment, thanks to improved business confidence and a rise in credit availability. Moreover, increased bank lending and subdued inflation shored up private consumption, which rose 3.5% in the fourth quarter, up from 3.2% in Q3. The two sub-components more than offset a moderation in government spending, which grew 5.7% in Q4, down from 6.4% in the third quarter, as measures to boost fiscal metrics are underway.
Although exports picked up in the final quarter, the external sector continued to drag on growth as imports surged ahead. Exports grew 3.0% in Q4, up from a 1.6% expansion in the third quarter. Meanwhile, imports accelerated sharply, rising 14.0% in the quarter, following an upturn of 8.4% in Q3.
The economy is set to gain ground this year, led by higher investment. Meanwhile, a tighter labor market should buttress wages and fuel a pick-up in private consumption. Risks to the outlook stem from a decline in commodity prices and tighter global financial conditions. Moreover, challenges linked to the pace of fiscal reform—key to Colombia’s sovereign debt investment grade credit rating—presents considerable uncertainties, especially given the tense dynamics between the government and Congress.
Commenting on the economy’s near-term fiscal challenges, Joao Ribeiro and Mario Castro, research analysts at Nomura, stated:
“In the near term, the poor relationship with Congress, the widely perceived fragility of finance minister Carrasquilla and the upcoming local elections (October) seem to paint a picture of an underwhelming set of conditions for meaningful adjustments. In the longer term, locals’ concerns over increasing uncertainty around political/electoral developments and the improving conditions for a more left-leaning government at some point down the road (unlike the more center/right outcomes of the past several elections) could also hamper the government’s willingness to make deeper fiscal changes.”