GDP growth moderates in the second quarter

GDP growth below market expectations: Colombian year-on-year GDP growth waned to 2.1% in Q2, from 2.7% in Q1. The reading came in below the Central Bank’s and market expectations and undershot the last five-year average. On a seasonally adjusted quarter-on-quarter basis, economic growth ticked up to 0.5% in Q2, from 0.3% in Q1.

External sector weighs on GDP growth, but domestic demand remains strong: Looking at the details of the release, annual GDP growth declined due to a weaker external sector. Goods and services exports fell 1.6% in Q2 (Q1: +3.0% yoy) as U.S. tariffs likely weighed on shipments. At the same time, imports rose by 9.7% in Q2, decelerating from Q1’s 11.8% increase but remaining high. As a result, net trade detracted from the headline reading. On the domestic front, household spending growth inched down to 3.7% in the second quarter (Q1: +3.9% yoy), but stayed near a two-year high: A tighter labor market and strong remittance inflows boosted purchasing power. Moreover, government spending growth rose to 3.9% in Q2 (Q1: +3.8% yoy), while fixed investment growth accelerated to 1.7% in Q2, following the 1.5% increase recorded in the previous quarter.

2025 GDP growth to gain traction from last year: Our panelists expect annual GDP growth to pick up from Q2 levels in the third quarter, likely supported by robust private spending. Available data supports this view, with automobile sales, employment and consumer confidence all improving at the start of the current quarter. In 2025 as a whole, Colombia’s economic growth should be the fastest rate in three years and hover around the regional average. A lower unemployment rate, robust wage growth and lower inflation will boost private spending growth, while government spending should accelerate. That said, economic growth is forecast to remain weak by pre-Covid standards, as soft growth in goods and services exports—curtailed by U.S. tariffs and lower oil prices—and sluggish investment are set to weigh on GDP growth. U.S. trade and migration policies are key factors to monitor.

Panelist insight: Commenting on the outlook, BBVA’s Mauricio Hernández-Monsalve stated: “We maintain our GDP growth forecast for 2025 […]. However, the outcome could be higher if the positive signals already discussed—such as improvements in confidence and leading indicators—are consolidated, and if non-traditional exports continue to show less impact than initially expected from higher U.S. tariffs. It will also be crucial for the national and regional governments to sustain high levels of public spending execution, as seen so far in national-level operations and employment, and in regional infrastructure projects.” Santiago Tellez, analyst at Goldman Sachs, added: “We expect below-trend growth rates in upcoming quarters. […] the outlook for housing investment remains depressed, and the potential slowing of workers’ remittances may be another drag. Conversely, activity will benefit from expansionary fiscal policy. Excluding housing, fixed investment has been more resilient than anticipated, although its near-term outlook is clouded by the recent increase in the withholding tax rate on corporate income.”

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