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Higher rates and weak domestic sentiment point to an activity slowdown ahead

Vittorio Peretti & Carolina Monzón


Colombia’s economy continued to grow sequentially in 4Q22, but more demanding base effects resulted in lower-than-expected 2022 growth. GDP growth in 4Q22 came in at 2.9% YoY down from the 7.8% increase in 3Q22 (revised up by 0.8pp), and below the Bloomberg market consensus of 3.8% and our 3.7% forecast. The annual GDP increase was pulled up by investment but countered by a moderation in private consumption, falling public consumption and softening export growth. At the margin, activity expanded 0.7% from 3Q22 (+0.5% in 3Q22), the sixth consecutive sequential expansion. The monthly coincident indicator shows activity rose 0.6% MoM/SA during the final month of the quarter, despite weak retail and manufacturing prints, and rebounding from the 0.2% contraction in November. For the full year, activity grew 7.5%, below the market consensus and our forecast of 8.0% (also BanRep’s expectation), down from 11.0% in 2021 (revised up by 30bps). Overall, GDP is 8.1% above pre-pandemic levels. Given part of the lower print for 2022 is due to base effects and the economy continues to grow at a decent pace sequentially, the print adds pressure on the monetary policy decision in March. We see the cycle concluding at 13.25%.

Investment remained strong in 4Q22 while the consumption pull is gradually weakening. On the supply-side, natural resource activity remained weak, with a 3.2% contraction in 4Q22 (+0.1% in 3Q22). Meanwhile, non-natural resource activity slowed to 3.5% YoY (+8.7% previously). Non-tradable sectors (excluding mining, agriculture and manufacturing) grew 3.7% (8.9% previously), explained mainly by financial services. The demand-side breakdown shows private consumption rising by 4.3% YoY, down from the 9.6% registered in 3Q22, while public consumption contracted -5.1% (+1.6% in 3Q22). Gross fixed investment increased 10.3% YoY (16.6% in 3Q22), boosted by machinery and equipment. The negative contribution from net exports remained large with imports growing 10% (24.6% in 3Q22), while exports increased a moderate 1.9% (15.3% in 3Q22). For the full year, household consumption grew 9.5% YoY (+14.5% in 2021), and investment expanded 19.5% YoY (+12.6% in 2021). Imports rose 23.9% YoY last year (similar to 2021), while exports expanded 14.9% YoY (in line with 2021).

At the margin, activity expanded 2.7% qoq/saar, up from the 1.9% in the 3Q22. The key driver to activity dynamics in the quarter was an improvement in net exports as imports slump (-20% qoq/saar), while gross fixed investment still rose an elevated 8.45% qoq/saar (+24.2% previously). Meanwhile, public consumption contracted 18.8% (-5.3% in 3Q22) and private consumption fell 0.6% qoq/saar (+9.4% in 3Q22).

Higher rates, weak domestic sentiment, and elevated policy uncertainty point to an activity slowdown this year. We expect 0.6% growth in 2023.

Vittorio Peretti
Carolina Monzón