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Colombia’s Growth Data Shows Economy Is Worse Off Than Thought

Bloomberg logoBloomberg 2/15/2023 Oscar Medina

(Bloomberg) -- Colombia’s steep growth slowdown late last year combined with large data revisions showed its economy is weaker than initially thought, posing a challenge for policymakers who are still grappling with the fastest inflation in over two decades. 

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Gross domestic product expanded 2.9% in the fourth quarter from the previous year and 0.7% from the prior quarter, the statistics agency said Wednesday. Economists surveyed by Bloomberg expected year-on-year growth of 3.8%. The results were affected by significant revisions to first and third-quarter data, following the adoption of a new methodology.

Tale of Two Economies | Data revision shows an earlier Colombian economic slowdown © Bloomberg Tale of Two Economies | Data revision shows an earlier Colombian economic slowdown

The revisions show that “the economic slowdown didn’t start in the fourth quarter but before, which wasn’t clear to us,” Scotiabank Colpatria economist Sergio Olarte said by phone. “It is a problem for the central bank because the story changed for the worse, with a steeper slowdown but still high inflation. Can the central bank continue increasing rates?”

Colombia’s economy is slowing after the central bank raised borrowing costs by 11 percentage points since 2021 to combat inflation that’s running above 13% a year. Finance Minister Jose Antonio Ocampo, who has a seat on the monetary policy committee and has expressed concerns about the growth outlook, may argue that interest rates can’t go higher because they’re already hurting the economy without further lowering inflation, Olarte added.

Before GDP data was published, economists surveyed by the central bank expected two more hikes in March and April, leading the key interest rate to end the tightening cycle at 13.25%. 

Cut Flower Cultivation Ahead Of Valentine's Day © Photographer: Ivan Valencia/Bloomberg Cut Flower Cultivation Ahead Of Valentine's Day

Confidence Blow

January consumer confidence, an indicator that correlates with future consumption, fell to -28.6, much worse than the -19.8 analyst forecast, and is now at the lowest level since May 2021.

The central bank estimates gross domestic product will expand by just 0.2% this year as higher interest rates and rising prices hurt domestic demand and private investment eases. Urban unemployment lost momentum in December and unexpectedly jumped to 10.8%.

A slower economy and high consumer prices may be weighing on President Gustavo Petro’s popularity levels, which have fallen below 50% just as he begins a push for major reforms to labor laws and Colombia’s health and pension systems.

The peso has weakened more than 1% so far this year after a 16% fall last year.

(Recasts story with details on revisions to GDP data.)

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