Colombia: GDP slows more than expected in Q2, records weakest expansion in more than six years
September 5, 2016
The Colombian economy continues to adjust to low oil prices two years after they first started to collapse. GDP grew 2.0% over the same quarter last year in Q2, according to the Colombian National Statistical Institute (DANE). The result came in below both the 2.5% increase registered in Q1 and market expectations of a 2.3% rise, marking the worst result since nearly seven years ago, when the economy was gripped by the fallout from the global financial crisis. The weak figure was mainly the result of a deceleration in private consumption growth and a deterioration in the external sector’s contribution to overall growth.
Along with most of its Latin American neighbors, Colombia has been struggling due to collapsing commodity prices. This has mainly affected exports of hydrocarbon and base metals, which account for half of the country’s exports. Despite this climate, growth in exports of goods and services actually accelerated to 3.6% in Q2 (Q1: +2.6% year-on-year), while imports swung from a 0.8% decrease in Q1 to a 0.7% increase. Due to the rebound in imports, the external sector’s contribution to overall growth deteriorated from 0.7 percentage points in Q1 to 0.4 percentage points in Q2.
The domestic side of the economy experienced slower growth in Q2 relative to Q1. While government consumption accelerated over the previous quarter (Q2: +2.0% yoy; Q1: +1.6% yoy), private consumption slowed from a 3.6% increase in Q1 to a 2.7% increase in Q2. Private consumption makes up approximately 60% of Colombia’s GDP and is the largest contributor to Colombia’s economic growth. Q2’s slowdown in consumption was likely prompted by BanRep’s tighter monetary policy and by weaker consumer confidence. The net effect was a decline in total consumption growth from 3.2% in Q1 to 2.6% in Q2, the weakest expansion in over six years. Meanwhile, total investment improved slightly, moving from a 2.6% contraction in Q1 to a 2.3% decrease in Q2. The improvement was driven in part by a slower contraction in fixed investment (Q2: -1.8% yoy, Q1: -3.0% yoy).
In seasonally-adjusted terms, the economy expanded 0.2% over the previous quarter in Q2, mirroring Q1’s print, which had been the worst result since Q3 2012.
Author: Luis Lopez Vivas, Economist