Itaú BBA - COLOMBIA – Growth in 2019 was the highest in 5 years

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COLOMBIA – Growth in 2019 was the highest in 5 years

Fevereiro 14, 2020

Growth in 4Q19 was broadly in line with 3Q19 as slowing consumption and investment were offset by a smaller net export drag.

GDP expanded 3.4% in the final quarter of last year, above the Bloomberg market consensus of 3.2% and our 3.3% call. Growth was broadly in line with 3Q19 (revised up 0.2pp to 3.5%), as slowing consumption and investment were offset by a smaller net export drag. At the margin, growth lost momentum. For the full year, activity grew 3.3%, a recovery from the downwardly-revised 2.5% in 2018 (2.6%, previously). Going forward, developments on the global outlook and possible domestic social unrest would be key as to whether Colombia can consolidate its recovery.

Improving natural resource related activity (agriculture and mining), along with recovering construction contained a widespread service slowdown. Construction was broadly flat from 4Q18 (2.7% drop in 3Q19), while mining grew 2.0% (1% previously), despite a weak coal industry. Growth drivers remained commerce (4.7% yoy vs. 5.9% in 3Q19), financial and insurance services (4.6% vs. 8.0% previously) and the public administration (4.9% vs. 5.1% in 3Q19), but all posted some growth moderation. Retaining service dynamism going forward would likely require some private sentiment and labor market recovery. For 2019, in line with upbeat retail sales, activity was boosted by commerce (4.9% vs 2.7% in 2018). The key drag last year came from construction falling 1.3% (0.4% drop in 2018).

The demand-side breakdown shows the deceleration of consumption and gross fixed investment being offset by the slowest import gain in more than a year. Private consumption grew 4.4% (from 4.9% in 3Q19), as favorable financing conditions and Venezuelan immigration likely helped, while the mild disruption to business operations in November (amid protest action) could have played a role in the growth moderation. Public consumption increased 4.3% (4.7% in 3Q19). Meanwhile, gross fixed investment slowed to 2.5% yoy (5.9% in 3Q19), as the pull from machinery and equipment eased. The weaker activity dynamism was partly offset by a smaller net-export drag (1.4pp vs. 2.8pp in 3Q19) as imports moderated to 5.6% (11.5% in 3Q19), while exports remained weak (0.3% yoy vs. 2.0% in 3Q19). Overall, the 3.3% activity growth last year was lifted by internal demand accelerating to 4.5% from 3.4% in 2018.

At the margin, activity momentum decelerated to 1.9% qoq/saar, from 2.5% in 3Q19, the slowest pace since 1Q17. The protest action during the final quarter of last year is likely behind the slowdown. Explaining the moderation were slowing mining, commerce and financial and insurance services. From the demand side, investment fell 6.5% qoq/saar (from +2.9% previously), while private consumption slowed to 3% qoq/saar (4.2% in 3Q19).

We expect still robust investment and consumption to drive a GDP growth rate of 3.1% this year. Close to potential growth, alongside inflation that would gradually converge to the 3% target, favors a stable policy rate near neutral levels.

Miguel Ricaurte
Carolina Monzón



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