Colombia Economy Posts Negative Growth in the Third Quarter of 2023

The worst predictions have come true for Colombia. Following an almost 0 growth in the second quarter of 2023, the Colombian economy dropped into negative growth territory for the third quarter of the year. The Gross Domestic Product (GDP) decline from July to September was -0.3%, something that hadn’t occurred since late 2020 when the effects of the Covid-19 pandemic and lockdown contracted the economy.

Colombia’s National Administrative Department of Statistics (DANE) announced yesterday, November 15, that the GDP growth was -0.3%, marking a 7-point drop compared to the same period the previous year when it stood at 7.4%. The figure has been described as “really bad” by the Finance Minister, Ricardo Bonilla, as neither the government nor the main economic analysts expected to enter a recession.

Industry, commerce, and construction drive the decline in Colombia

Among the most affected sectors from July to September, according to the report, were: Manufacturing industries, with a contraction of -6.2% and a contribution of -0.8 percentage points to the GDP, followed by Construction, which fell by -8.0% and contributed -0.4 percentage points. Thirdly, the most substantial decline was observed in commerce, which retreated by -3.5% and had a contribution of -0.7 points to this indicator.

According to the latest DANE statistics, out of the 39 industrial activities, 31 have been showing setbacks, a trend in line with the decline in employed personnel and real sales in the sector. In this regard, the Finance Minister assured that the “effects of the economic deceleration are still being felt.”

Delving into the data, the worst performances were in the manufacturing of textile products, garment making, and footwear; along with the production of basic metallurgical products.

Commerce, on the other hand, contracted by 3.5%, a segment of the economy that has also been showing signs of deceleration. Notably, subsectors like accommodation and food services, along with transportation and storage, have declined.

Additionally, construction contracted by 8% during the third quarter. According to figures from the Colombian Chamber of Construction (Camacol), nearly 92,000 homes have ceased to be sold between January and September, with a 48% decline compared to the same period last year, dropping from 191,469 units to 99,501. The most pronounced fall this year is evident in the social interest segment, where sales decreased from 138,989 units to 65,867, marking a 52.6% contraction.

Fenalco calls for government measures

It’s worth highlighting that a year ago, reports for industry, commerce, and construction showed growth rates of 7.2%, 10.5%, and 13.8%, respectively, underscoring that the economic deceleration continues to impact three of the country’s most crucial sectors for development.

In this regard, the National Federation of Merchant Entrepreneurs (Fenalco) has expressed concern about these figures. Speaking on behalf of the federation, its president, Jaime Alberto Cabal, stated that “this situation should convince the government to implement an emergency plan to avoid a recession,” while emphasizing that “leadership and political will are required to set it in motion.”

Colombian finance minister reiterates the call for rate reduction

In this context, Ricardo Bonilla has expressed that “efforts must be made to revive the economy, which involves reactivating civil works and housing.” The minister has seized upon today’s dismal data to reiterate his plea to the Bank of the Republic to begin reducing the interest rate.

It’s important to remember that the issuing bank refuses to lower the rate from the 13.25% mark it has been anchored at for 6 months. Similarly, Minister Bonilla showed little optimism in this regard, as he does not anticipate “an aggressive rate cut in December,” when the bank’s board of directors is set to meet again to decide on Colombia’s interest rates as 2023 draws to a close.

Former Finance Minister denies “recession”

In statements to W Radio, former Finance Minister under Petro’s government, José Antonio Ocampo, denied that the country is heading toward the feared recession. Although he highlighted the significant drop in economic activity, Ocampo said that Colombia will not fall into an economic recession. “Colombia is not heading towards an economic recession; it will remain in this stagnation but not in a recession. However, we need to reactivate housing, industry, commerce; these are sectors that have been hit,” stated the former minister, one of the most experienced voices in the country’s economic matters.

“This Government is aware of the economic deceleration (…) This is about generating confidence, making the private sector understand its role in the economy, working actively with them, and maintaining Colombia’s macroeconomic stability for international investors,” expressed the former Finance Minister, who held the position until April this year.

Ocampo highlighted the strength of the Colombian economy, making it the country that has experienced the fewest crises in the last 75 years in Latin America. Regarding the inflation rate, the former liberal minister stated that it not only depends on the country’s situation but also on “international conflicts, such as wars, and other external factors.”