Itaú BBA - COLOMBIA – Mild activity improvement in 2Q17

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COLOMBIA – Mild activity improvement in 2Q17

August 16, 2017

We expect growth of 1.6%, down from 2.0% in 2016, but acknowledge downside risks.

Activity posted a mild recovery in 2Q17, but remains weak as the economy continues to adjust to the terms of trade shock. Activity increased 1.3% year-over-year in 2Q17, between Bloomberg’s market consensus of 1.2% and our estimation of 1.4%. The performance is an improvement from the upwardly revised 1.2% in 1Q17 (1.1% initially), but failed to prevent a slowdown in the rolling-4Q growth rate to 1.3% (1.6% in 1Q17; 2.0% in 2016). As activity stays at low levels, the central bank will likely implement additional rate cuts. We expect a 25-bp rate cut to 5.25% later this month, with further cuts early next year.

Mining activity remains a principal drag on activity. Activity in the quarter was led by financial services (+3.9% yoy vs. 4.3% in 1Q17) and social services (+3.0% vs. 2.9% in 1Q17), while manufacturing (-3.3% vs. +0.3% in 1Q17) and mining (-6.0% vs. -9.3% in 1Q17) dragged activity down. Mining hampered total natural resource related activity, offsetting the positive contribution from agriculture (4.4%, after 7.8% in 1Q17), a sector that has been favored by diminishing negative effects from last year’s El Niño weather phenomenon. Within mining, oil and natural gas production recorded the eighth consecutive quarter of contraction with a decline of 5.4% (-12.1% in 1Q17 and -11.1% in 2016). Overall, natural resource activity contracted 1.0% from last year (-1.3% in 1Q17), but fell even more (-6.0%) if agricultural production is excluded. Meanwhile, activity in non-natural resource sectors expanded 1.4% year over year (1.5% in 1Q17), unchanged even if oil refining is excluded as the Cartagena refinery reaches a higher base of comparison.

At the margin, activity recovered from the drop in the first quarter of the year which was negatively affected the by the increase in sales tax. Activity expanded 3.0% qoq/saar in 2Q17, after a 1.3% contraction in 1Q17, favored by improving mining, construction and commerce.

Activity will likely show some recovery in the second part of the year. We expect growth of 1.6%, down from 2.0% in 2016, but acknowledge downside risks. Lower inflation, the ongoing monetary-easing cycle, and higher average oil prices compared to 2016 will favor growth going forward.


Miguel Ricaurte

Vittorio Peretti


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