The Colombian Economy Slows Down in 2016

The Colombian economy grew 2.0 percent in 2016, compared to the previous year, after growing 3.1 percent in 2015. The economy grew 1.0 percent in the last quarter of the year, quarter on quarter.

Financial and Real Estate Sector Drives Growth in 2016

The Colombian economy grew 2.0 percent during 2016 after growing by 3.1 percent the previous year. The financial, insurance and real estate sector was the strongest during 2016, increasing 5.0 percent during the year. Within this sector, financial intermediation was the strongest sector, growing 11.1 percent during the year, while real estate grew 3.2 percent. Following this sector was construction, which posted a growth rate of 4.1 percent while manufacturing activity inched up 3.0 percent, all compared to 2015.

On the other hand, mining was the weakest sector, falling 6.5 percent during the year and is still affected by the drop in petroleum prices. In fact, within this sector, oil and natural gas extraction fell 11.1 percent, while extraction of coal grew 5.7 percent, metallic minerals inched up 4.3 percent and nonmetallic minerals increased 1.6 percent.

But not all was bad within the petroleum sector as growth of 23.2 percent in petroleum refining was the driving force in the 3.0 percent increase in manufacturing output during the year.

Another sector that grew faster than the economy as a whole was the communal and personal social services sector, which posted a growth rate of 2.2 percent during the year.

Although we do not have the demand-side components of the economy, it is clear that consumer demand was relatively weak during the year as the commerce, repairs, restaurants and hotel sector increased only 1.8 percent. Within this sector, automobile repairs was the strongest, with an increase of 5.0 percent while sales at hotels, restaurants and bars increased 0.7 percent and commerce inched up 1.8 percent.

Economic Prospects Remain Positive

For an economy that had to sustain a very strong depreciation of the currency during 2015 and 2016 as well as a more than doubling of the rate of inflation, the 2.0 percent rate of economic growth achieved in 2016 is probably not as bad as it looks. Furthermore, the adjustment in the mining sector, but more specifically in the petroleum sector, will probably come to an end very soon. If we add the signing of the peace agreement between the FARC guerrilla group and the Colombian government to the equation, the prospects for the petroleum sector to attract new foreign investment will improve considerably during the next several years, which will enhance the ability of this sector to contribute once again to economic activity. However, until that happens, economic growth will remain range bound and close to 2 to 3 percent.