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Colombia’s GDP Only Grew by 1.1% in the First Quarter of 2017

Posted On May 28, 2017
By : Jared Wade
Comment: Off
Tag: Agriculture, bancolombia, capital economics, construction, financial services, IVA, Manufacturing, mining, Transportation, value added tax, vat

Colombia’s GDP grew by just 1.1%, year over year, in the first quarter of 2017, according to government figures released this month. While the results were in line with the 1.1% projection previously made by analysts polled by Bloomberg, the figure was below both the calendar-year 2016 growth (2.0%), the fourth quarter year-over-year results (1.6%), and the first quarter 2016 year-over-year results (2.6%).

The low projections were in part due to a widespread expectation that the tax increase passed by Colombia in the final days of 2016 would weigh on consumption. Among the most controversial aspects of the tax reform was a 3% hike in a nation’s value-added tax (VAT, known as IVA in Colombia).

“The deceleration of the Colombian economy at the beginning of 2017 would reflect a loss of traction in domestic demand impacted by low consumer confidence, the entry into force of the tax reform (which affected consumption by the increase in VAT and changes in the income tax of individuals), restrictive financial conditions, and the deterioration of the labor market,” stated the Medellín-based Bancolombia in a note to investors.

As consumers adjusted to the VAT increase, retail output contracted by 0.4% in the first quarter (year over year). “That’s the first time that the sector has contracted in annual terms since 2009,” stated London-based research firm Capital Economics in a report. “What’s more, in quarter-over-quarter terms, retail output dropped by 2.1%, the biggest contraction in this sector since the series began in 2001.”

Mining (down 9.4% year over year) and construction (-1.4%) were two other sectors that experienced lower growth in the first three months of 2017 compared to the same period last year. Transportation was also down (-0.4%).

Agriculture and financial services, by contrast, were two areas that showed improvement, realizing increases of 7.7% and 4.5% year over year. Manufacturing was also up slightly (0.3%).

While the early-year growth was underwhelming compared to past quarters, most analysts expect this to be the low-water mark during a year that will see improvement in later months. Bancolombia is projecting growth of 1.8% in the second quarter of 2017, 2.5% in the third quarter, and 2.3% in the fourth quarter.

Overall, the bank is predicting an annual growth rate of 2.0%, the same rate of expansion that Colombia experienced in 2016. “As the year goes by the economy will gradually gain traction,” stated Bancolombia.

Capital Economics also said that the first quarter “should be a bottom.” It did note, however, that risks to its year-long GDP forecast of 2.0% “now lie to the downside” and that “the latest consumer confidence data suggest that the impact of the VAT hike will continue to weigh on consumer-facing sectors.”

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About the Author
Jared Wade is an editor at Finance Colombia. He is a Bogotá-based journalist with 20+ years of experience covering topics including business, financial services, Latin America, and sports. You can contact him at jared.wade(at) financecolombia.com.
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