Itaú BBA - COLOMBIA – Gradual activity recovery initiated in 3Q20

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COLOMBIA – Gradual activity recovery initiated in 3Q20

November 17, 2020

Despite the loosening of mobility restrictions over the course of the quarter, subnormal activity endured

GDP shrunk 9.0% yoy in the third quarter of the year, as a partial recovery unfolded amid a gradual normalization of activities. The print was in line with the Bloomberg market consensus and somewhat weaker than our -8.5% call. The decline is milder than the historic contraction of 15.8% in 2Q20 (revised down by 0.1pp). All of the twelve main productive sectors increased from 2Q20, led by manufacturing (+23.4%), so GDP gained 8.7%, partially compensating for the 16.1% decline in 2Q20. The GDP level remains 10% below that at the start of the year. With the reopening of the economy consolidating during 4Q20, signs of an employment recovery underway, and the sustained stimulus from monetary policy, activity will likely continue to recover ahead.
Commerce, construction, and mining were the main year-over-year drags in 3Q20. Despite improving from 2Q20, commerce continued to fall significantly (20.1% vs. the 34.1% drop in 2Q20), a reflection that despite the loosening of mobility restrictions over the course of the quarter, subnormal activity endured. Additionally, construction and mining contracted 19.1% and 26.2%, respectively. The three sectors together explained one-third of the total activity contraction in the quarter. Meanwhile, real estate (+1.8% yoy: contributing 0.2pp), financial and insurance services (1.5% yoy, contributing 0.1pp) and agriculture (1.5% yoy, +0.1pp) partially contained the activity weakness. 
The gradual activity recovery is being driven by investment and consumption dynamics, while exports remain a notable drag. Gross fixed investment contracted 19.5% yoy, moderating from the 33.5% decline in 2Q20, as investment in machinery and equipment declined by a far milder 2.9% (37.7% down in 2Q20). Additionally, private consumption fell 8.9%, partly recovering from the previous drop of 15.9%, in line with a gradual consumer sentiment recovery, job gains and the consolidation of support measures. Durable consumption goods decreased 4% yoy (33% previously), services shrunk 14.1% (20.7% in 2Q20), while non-durable consumption increased 4.3% (a tick up from 2Q20). In line with recovering domestic demand, imports shrunk by a fifth (30.2% down in 2Q20). Meanwhile, exports shrunk 24.1%, broadly similar to the prior quarter, as commodity exports remain a key drag. As a result, GDP was hampered by a negative net-export contribution (-0.6pp).

While the reopening of the economy from September would aid the recovery process, figures for 3Q20 reinforce our view that the Colombian economy would shrink 7.0% this year.For 2021, a favorable carryover and a better external environment will likely lead to GDP growth of 4.7%.

Miguel Ricaurte
Carolina Monzón

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