The Colombian economy continued to slow down in the third quarter of 2023, as revealed by Dane. The gross domestic product (GDP) contracted 0.3 percent compared to the same period in 2022, putting the country on the verge of recession. This is the worst economic data since the 1999 financial crisis, and the first time the economy has gone backwards in the 21st century, excluding the abnormal period of the Covid-19 crisis.
Even the most pessimistic forecasts were off the mark as BBVA Research projected a slight growth of 0.1 percent, Corficolombiana projected an increase of 0.3 percent, and the Banco de la República projected 0.4 percent. The brake started from the fourth quarter of 2022, with economic growth dropping from double digits to 0.4 percent in the third quarter of 2023.
Five of the 12 sectors analyzed by Dane are now in the red, with construction experiencing the most significant fall of 8 percent. This has led to a worrying drop in the sales of new homes, especially in the social interest homes category. The manufacturing industries also suffered a 6.2 percent decline, further compounding the economic slowdown.
Seven sectors of the economy remain in the green, but with low growth. Despite this, the cumulative effect of the contracting economy is evident in the falling domestic demand and household spending. The gross capital formation has also seen a significant decrease, raising concerns among entrepreneurs and investors.
Faced with this economic downturn, President Gustavo Petro is advocating for a lower interest rate and an increase in public investment to counteract the slowing economy. He has also called for a discussion in Congress about maintaining the fiscal rule, highlighting the need for public investment to offset the decline in private investment. The failure to maintain the fiscal rule is a break from the current government’s commitment to limit borrowing.
As the year comes to an end, concerns are growing about the potential hard landing of the economy. The El Niño phenomenon further compounds the economic challenges, with its major impact expected in 2024. The poor performance of the productive apparatus is also seen as a risk factor for the labor market and the employed population.
The third-quarter GDP data has sent shockwaves through the economic landscape, prompting the need for immediate action to prevent an unsustainable economic situation. With potential consequences for public investment, infrastructure, health, and mining-energy, the slowing economy presents a critical challenge for the Colombian government and business sectors.