Economy expands at the fastest pace in over two years in Q1

Faster-than-expected expansion remains below trend: The economy started the year with a spring in its step, with GDP growth accelerating to 2.7% year on year in the first quarter from 2.5% in the fourth quarter of last year and marking a two-and-a-half-year high. The reading outpaced market and Central Bank’s expectations and was in line with Latin American standards, though it remained below the pre-pandemic 10-year average of 3.7%. On a seasonally adjusted quarter-on-quarter basis, economic growth edged down to 0.8% in Q1 from Q4’s 0.9%.

Private spending propels the upturn: Domestically, healthier household spending—which accounts for over three-quarters of GDP—underpinned the annual upturn, rising at an over two-year high pace of 3.8% in the first quarter, up from the prior quarter's 2.8% increase; private consumption benefited from a lower unemployment rate, government transfers and an especially strong peak concert season buttressing tourism. In addition, public expenditure growth improved to 4.3% in Q1 (Q4 2024: +4.1% yoy), likely supported by higher export revenues amid surging prices for coffee, a key export. Less positively, fixed investment growth plummeted to a one-year low of 1.8% in Q1 from Q4 2024’s 11.8%, capped by interest rates remaining sky-high by pre-Covid standards. Externally, exports of goods and services rose 2.4% in the first quarter (Q4 2024: +1.8% yoy), likely bolstered by healthier crop yields and front-loading ahead of U.S. tariffs. Meanwhile, imports of goods and services growth sped up to a two-and-a-half-year high of 11.9% in Q1 (Q4 2024: +9.8% yoy). As a result, net exports detracted from the headline print.

Colombian economy to remain weak by pre-pandemic standards ahead: Our panel expects the economy to be losing slight momentum in the current quarter, dented by a fading boost to private spending from the strong concert season and public transfers. Moreover, lower coffee and oil prices will strain public finances by denting export earnings, in turn suffocating government expenditure. Still, resumed monetary policy loosening should support fixed investment. With only a shallow acceleration penciled in by our panelists for H2, economic growth is forecast to remain weak by pre-Covid standards overall in 2025. Still, it should come in at a three-year high and hover around the regional average. Risks are tilted to the downside, and include political and social unrest as well as budget and energy crises, the latter resulting from underinvestment in the hydrocarbons sector, disruptions to hydroelectric output and rebel attacks on oil infrastructure. Meanwhile, U.S. trade policy is key to monitor.

Panelist insight: Goldman Sachs’ Santiago Tellez commented: “The headline growth reading was undoubtedly robust, but we do not necessarily see it as reflecting the underlying strength of the economy. Instead, we see growth softening to below-trend rates in upcoming quarters. For one, activity was substantially skewed towards private consumption whose dynamism, we suspect, was partially explained by external factors that may start to moderate in upcoming months, including the slowing of workers’ remittances and tourism.” Daniel Velandia and Diego Camacho Alvarez, analysts at Credicorp Capital, said: “We are maintaining our long-held and below-consensus GDP projection for 2025 of 2.3%. Although we continue to expect households’ spending to maintain a recovery trend ahead amid higher real income and lower interest rates, our conservative projection reflects the impact of persistent regulatory and political noise on private investment decisions as well as the effect of the challenging fiscal backdrop.”

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