Colombia: Economy weakens more than expected in Q2
GDP growth waned to 0.3% year on year in the second quarter, from 3.0% in the first quarter. Q2’s reading marked the worst result since Q4 2020. On a seasonally adjusted quarter-on-quarter basis, economic activity contracted 1.0% in Q2, contrasting the previous quarter’s 2.2% expansion and undershooting market expectations.
The downturn was driven by weakening private consumption, fixed investment and net exports. Household spending growth fell to 0.7% in Q2, marking the weakest expansion since Q3 2020 (Q1: +3.1% yoy), likely due to high inflation and interest rates. Fixed investment contracted 7.8% in Q2, marking the worst reading since Q4 2020 (Q1: -0.9% yoy), weighed on by high interest rates and, potentially, by political uncertainty. Exports of goods and services growth eased to 2.5% in Q2 (Q1: +2.6% yoy).
Meanwhile, imports of goods and services fell at a steeper pace of 14.5% in Q2 (Q1: -7.6% yoy), and public consumption growth rebounded to 2.3% in Q2 (Q1: -0.3% yoy).
Turning to Q3, economic activity is likely to remain weak in the face of high inflation and interest rates, and anemic demand from Colombia’s main trading partners. Rising political instability may also weigh on investment.
Analysts at Goldman Sachs were downbeat on the outlook:
“Domestic demand is now showing consistent signs of moderation following the strong prints in 2021-1H2022. Going forward, we expect economic activity to moderate on the back of high inflation, tighter financial conditions, and a weaker impulse from external activity. Moreover, still elevated policy uncertainty emanating from the cumulative impact of several tax reforms and weak business sentiment are likely to impinge further on private investment, while slow fiscal execution by central government ministries and agencies may bear on public investment.”