Colombia: Slow recovery on the way

December 8, 2017

Latin News

Colombia’s GDP grew by 2.0% year-on-year in the third quarter, according to the national statistics agency (DANE). Although this was below government expectations, Finance Minister Mauricio Cárdenas nevertheless welcomed it as part of a first phase of economic recovery.

The economic team expects growth to pick up to 2.5% in the fourth quarter, which would imply that growth for calendar 2017 as a whole will come in at 1.8%, a little below the earlier official target of 2.0%. The government continues to project 3.0% GDP growth for 2018. A range of analysts say there are questions about the pace of recovery.

Mauricio Hernández of BBVA Research notes that the Q317 results are mixed, with agriculture leading the field, partly because of a good coffee harvest. Manufacturing, on the other hand, has been weak. Stripping out agriculture’s contribution, growth would have been a lower 1.6%. However, Hernández adds that the beginnings of a positive turn-around in housing and construction are evident. While he believes that the economy is now turning onto a growth path, he warns that recovery will be slow and market sentiment volatile. The Central Bank, meanwhile, has warned that the recovery is subject to ongoing risks over the availability of foreign finance, possible export commodity price falls, and any downside movements in consumer or business confidence.

Trade with EU

The European Commission (EC) report on 9 November released a report which found that its free trade agreements (FTAs) signed with Peru and Colombia have helped stabilise two-way trade.

According to the report, since the FTAs with Peru and Colombia came into full effect in 2013, bilateral trade between the EU and Peru has fallen by 11% and bilateral trade between the EU and Colombia has fallen by 23.5%.

However, the report attributes this to the “economic slowdown in Latin America and the fall in commodity prices on the global market, which has affected exports of both countries”, and it notes that the FTAs with Colombia and Peru had a stabilising effect on international trade in these two countries, as their trade with the rest of the world has fallen by 36% and 18% respectively since 2013. In both cases, the fall in trade with the rest of the world was higher than the fall in trade with the EU.

The report goes on to suggest that without the FTAs Colombia and Peru’s fall in trade with the EU between 2013 and 2016 is likely to have been even greater. The FTAs with the EU were resisted by some quarters in both Peru and Colombia, which argued that they would prove to be detrimental for some local economic sectors and more beneficial to the EU.

Significantly, the EC report provides some evidence in support of that view, noting that EU exports to Colombia increased by 18% during the first two years of the FTA coming into force and declined by 17% in 2016. Meanwhile, EU imports from Colombia fell by 37.5% since the implementation of the FTA. Similarly, EU exports to Peru increased by 4% since the FTA came into effect, whereas imports from Peru fell by 4% over this period.

Contributor Biography

Latin American Newsletters (LatinNews) was founded in London in 1967 to provide expert political, economic, and security analysis on Latin America and the Caribbean. For nearly 50 years, it has been acknowledged as the foremost authority on the region.

Tags: colombia, economy, invest, investor, latin, latin america, politics, risk
Posted in LatAm, Macro Economics, Macro Economics