Colombia: GDP growth remains subdued in Q4
March 17, 2016
Colombia’s economy gradually accelerated throughout 2015 and closed the year with 3.3% growth on an annual basis in Q4 2015. Although this was the highest result in 2015, it is in line with the rate of expansion recorded in Q4 2014 and is subdued relative to the historical average. The modest expansion was the result of an improvement in the external sector’s contribution, which came on the back of a marked deterioration of imports.
Along with most of its regional peers, Colombia has suffered falling exports as global demand for resources wains. This has impacted exports of hydrocarbons as well as base metals, which make up over half of the country’s export profile. However, the quarterly contraction eased in Q4 as exports fell 1.0%, marking an improvement over Q3’s 5.2% contraction. Imports, also fell drastically, decreasing 2.9% in Q4 (Q3: +7.4 year-on-year). The sharp decline was likely the result of the depreciation of the Colombian peso, which weakened approximately 40% against the USD over the course of 2015. The weaker currency makes imports relatively more expensive. Although the peso began to depreciate earlier in 2015, it has taken time for the effects of the weaker currency show up in the data. The external sector’s net contribution to overall growth was positive and marked a solid improvement in comparison to the previous quarter. The sector contributed 0.7 percentage points to GDP growth in Q4, contrasting the 3.0-percentage-point detraction observed in Q3.
The domestic side of the economy experienced slower growth in Q4 relative to Q3. While government consumption accelerated over the previous quarter (Q4: +4.0% yoy, Q3: +3.3% yoy), private consumption slowed from a 4.4% increase in Q3 to a 3.3% increase in Q4. Private consumption makes up approximately 60% of Colombia’s GDP and is the largest contributor to Colombia’s economic growth. Q4’s slowdown likely came from consumer confidence cooling down, growth in household credit moderating and worsening labor market conditions compared to earlier quarters in 2015. The net effect was a decline in total consumption growth from 4.2% in Q3 to 3.4% in Q4, the weakest expansion in six years. Total investment growth also slowed drastically, falling from 3.4% in Q3 to 0.2% in Q4. The decline was driven in part by a contraction in fixed investment (Q4: -0.1% yoy, Q3: +0.5% yoy).
In seasonally-adjusted terms, the economy expanded 0.6% over the previous quarter, which was below Q3’s 1.1% increase. Full year 2015 growth was 3.1%, down from 4.4% in 2014. The annual figure is the weakest result since the 2009 when the economy was gripped by fallout from the global financial crisis.
Author: Robert Hill, Economist