Colombia: Growth accelerates to four-year high in the third quarter
November 14, 2019
Economic growth accelerated to 3.3% year-on-year in the third quarter from 3.0% in the second quarter, according to a preliminary estimate released by the Statistical Institute (DANE) on 14 November. The print, which marked the fastest expansion since Q3 2015, was broadly in line with analysts’ expectations.
Blistering domestic demand powered the third quarter’s acceleration. The expansion in private consumption quickened to 4.9% from 4.4% a quarter prior amid high real salaries, the migration flow from Venezuela and robust growth in both remittances and consumer loans, while government spending jumped to 3.5% from 1.9% in Q2. In addition, fixed investment growth soared to 5.1% in Q3 (Q2: +4.3% year-on-year), largely boosted by upbeat business sentiment and VAT deductions on investment in machinery and equipment approved in last year’s tax reform.
Less encouragingly, however, the external sector languished again in the third quarter. While exports growth slowed to 1.9% from 3.7% a quarter prior, imports surged 10.0% in the quarter, from 8.2% in Q2. Taken together, the external sector dragged more severely on growth in Q3 than in the previous quarter.
In quarter-on-quarter terms, the economy grew 0.6% in the third quarter, down from 1.3% in the second quarter.
With regards to the third quarter expansion, Daniela Velandia and Camilo Duran, analysts at Credicorp, noted:
“All-in, we read the results of economic growth in 3Q19 as overall positive, especially considering the negative environment in the Latam region and the decelerating global economy amid the widespread uncertainty. We expect a slight deceleration of GDP growth in 2020 to 3.2%, as the weakening external scenario should take a toll on the already slim exports and on commodities prices, while the positive impulse of the political cycle on public spending investment should reverse along next year. In any case, the main factor to monitor will be the cycle of private consumption, which should continue to be the driver of GDP growth ahead amid still-healthy fundamentals.”
FocusEconomics Consensus Forecast analysts expect the economy to remain solid next year, with lower corporate taxes and fiscal exemptions supporting fixed investment, and softer inflation buttressing private consumption growth. Nevertheless, delays to amend the tax scheme pose downside risks to the investment and fiscal outlook, at a time of heightened external risks.
Author: Nicolás J. Aguilar, Economist