Colombia: Growth slows to over eight-year low in Q1
March 1, 2017
Q1’s GDP figures confirmed that the Colombian economy continues to struggle with low oil prices two years after they first started to fall. GDP growth slowed from 2.0% in Q4 to just 1.1% in the first quarter of 2017, the worst performance since December 2008. The dismal print was actually in line with market forecasts as there was widespread expectation that the tax increase approved by Congress in December would impact consumption.
The first quarter’s deceleration was mainly driven by weak private consumption—which accounts for around 60% of GDP. Private consumption growth slowed from 2.3% in Q4 to 1.1% in Q1, which reflected the negative effect of the three-percentage-point hike in the Value-added Tax implemented recently. Therefore, private consumption should gradually improve in the coming quarters. In contrast, government consumption picked up pace in Q1 as it grew 2.1%, a marked improvement from Q4’s 0.2%, which had been the lowest reading in over a decade. Although fixed investment continued to drag on growth, it seems to be on its way to a full recovery as it improved for a third consecutive quarter in Q1 (Q1: -0.7% year-on-year, Q4: -2.9% yoy).
Taking a look at the external side of the economy, exports of goods and services worsened from Q4’s 3.4% contraction to a 3.6% fall in Q1. While imports also declined in Q1, they did so at a much slower rate compared to the previous quarter (Q1: -0.4% yoy, Q4: -4.3% yoy). As a result, the external sector deducted 0.5 percentage points from growth (Q4: +0.6 percentage points)
In seasonally-adjusted terms, the economy contracted 0.2% over the previous quarter in Q1, which contrasted Q4’s 1.0% expansion.
Despite Q1’s disappointing print, Colombia’s economy should see a modest pickup this year as the Andean country gradually recovers from the shocks that affected growth in 2016, such as low oil prices, a prolonged drought and a disruptive truckers’ strike. Furthermore, fixed investment is expected to contribute to growth this year, as spending on the country’s ambitious 4G (cuarta generación) infrastructure program ramps up.
Author: Luis Lopez Vivas, Economist