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Falling imports signal further consumption weakening ahead.
2023/11/16 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Colombia’s GDP growth came in below expectations in 3Q23, dragged down by weak investment dynamics.  The economy contracted 0.3% YoY in 3Q23 (+0.4% in 2Q23), the first negative print since 4Q20. Annual growth in the quarter was below the Bloomberg market consensus of +0.5%, the BanRep technical staff's forecast of +0.4%, and our +0.1% call.  In annual terms, the slight contraction in annual GDP was pulled down by a double-digit gross fixed investment decline, while the upside pull from private consumption continued to moderate. Falling imports amid still growing exports helped continued the GDP contraction in the quarter. Sequentially, the economy grew 0.2% (SA) from 2Q23 to 3Q23, only partially offsetting the prior 1.0% fall. The evident activity slowdown will raise calls to start the rate cut cycle, yet sticky inflation at elevated levels along with inflation expectations well above the target mean the bar is high to initiate the easing cycle at next month's meeting of (December 19; we expect cuts in 1Q24). 

Construction, manufacturing and commerce contracted in 3Q23. Construction contracted 8.0% YoY (-3.4% in 2Q23), followed by manufacturing (-6.2%; -4.0% in 2Q23) and commerce (-3.5%; similar drop in 2Q23). Meanwhile, public administration grew 5.3% (4.5% in 2Q22), alongside entertainment services. Overall, natural resources rose 2.5% YoY (+0.8% in 2Q23), while non-natural resource activity contracted 0.6% YoY (+0.4% previously).


Investment remained weak, while imports continued to fall deeply signaling the private consumption adjustment expected ahead.  Gross fixed investment decreased by 11.0% YoY (-7.7% in 2Q23), primarily dragged down by machinery and equipment, while the depletion of inventory led to total investment contracting 33.5% YoY. On the other hand, total consumption grew 0.7% YoY (1.0% in 2Q23), lifted by public consumption (+1.9%), while private consumption slowed to 0.4% (0.8% in 2Q23). The net export contribution continues to grow as exports rose by 4.2% YoY (+3.2% in 2Q23), while imports contracted 21.5% (down 14.8% in 2Q23).


At the margin, activity increased 1.0% qoq/saar, reverting from the 3.9% contraction in 2Q23. The contraction in public consumption (-19.8% qoq/saar, from +29.4% in 2Q23) and gross fixed investment (-6.1% qoq/saar, from -21.8% in 2Q23), was countered by an increase in exports of 10% qoq/saar (below the 12.7% in 2Q23) and contracting imports (-13.9% qoq/saar). Private consumption increased a moderate 1.7% qoq/saar. The monthly coincident indicator shows that activity rose 0.1% MoM/SA during the final month of the quarter, lifted by commerce and agriculture.


We expect growth of 1.0% this year, with risks tilted to the downside. The weak print in 3Q23 consolidate the softening domestic demand outlook amid a contractionary monetary policy and weak private sector confidence. For 2024, we expect growth to come in at 1.2%, below both consensus and potential.