Colombia: Economy maintains momentum in Q1
May 23, 2019
The economy grew 2.8% in annual terms in the first quarter of the year, up marginally from the fourth quarter’s revised 2.7% growth (previously reported: +2.8% year-on-year), according to the latest national accounts data released by the Statistical Institute (DANE) on 22 May. The slight upturn was driven by a rebound in inventories, which contributed positively to growth and offset a deterioration in both domestic demand and the external sector.
Domestic demand grew at a weaker pace of 3.2% compared to 4.1% in Q4 2018. Belt-tightening measures caused government spending to expand at a considerably softer pace, while fixed investment growth moderated on a contraction in the purchase of dwellings and other buildings (Q1: +2.8% yoy; Q4: +3.2% yoy). On the flip side, private consumption was up 4.0% (Q4: +3.6% yoy) as consumers turned more optimistic about their personal finances in January and March, spurring greater household spending in the quarter.
On the external front, exports of goods and services decelerated in the quarter (Q1: +3.6% yoy; Q4: +5.7% yoy), reflecting weaker upturns in the overseas sales of petroleum and its byproducts, and carbon. Import growth, meanwhile, edged down to 13.7% in Q1 from 13.9% in Q1. As a result, the external sector dragged more severely on growth in the quarter than the previous one.
Looking ahead, the economy should pick up this year on higher restocking and a surge in investment activity. Overall, however, domestic demand is set to decelerate slightly on a fall in private consumption growth amid rising unemployment and a slower expansion in government spending due to the drive towards fiscal consolidation. Moreover, the external sector is expected to remain in the doldrums on a deterioration in export performance. Meanwhile, challenges linked to the pace of fiscal reform—key to Colombia’s sovereign debt investment grade credit rating—present uncertainties to the economic outlook, given the tense dynamics between President Iván Duque and the deeply-divided Congress.
Credit rating agencies have delivered mixed signals on this front. Moody’s lifted the outlook on the nation’s credit rating from negative to stable on 24 May, citing that recovering economic activity and current fiscal consolidation measures should stabilize the debt burden. This was swiftly followed by Fitch Ratings downgrading the outlook from stable to negative on the same day, arguing that existing efforts to do so are insufficient given rising risks from external imbalances.Panelists participating in the LatinFocus Consensus Forecast project that GDP will expand 3.1% in 2019, which is unchanged from last month’s forecast. Panelists see the economy growing 3.2% in 2020.
Author: Nihad Ahmed, Economist