Economy records best reading since Q1 2023 in Q2

GDP reading: The economy stepped on the gas in the second quarter, expanding 2.1% year on year (Q1: +0.8% yoy). Q2’s reading marked the best result since Q1 2023 and overshot the 1.8% forecast of the Central Bank (Banrep); that said, it fell short of market estimates. On a seasonally adjusted month-on-month basis, economic growth slowed to a near halt, coming in at 0.1% in Q2 from the previous period's 1.2%.

Drivers: Domestically, the annual acceleration was due to households benefiting from a lower unemployment rate and wage growth outpacing inflation: Private spending growth tripled to 1.5% year on year in the second quarter (Q1: +0.5% yoy)—marking the best reading since Q1 2023. Moreover, fixed investment rebounded 4.3% from Q1’s 6.2% contraction. Similarly, public expenditure bounced back, growing 2.0% in Q2 (Q1: -0.8% yoy). On the external front, exports of goods and services increased 4.8% on an annual basis in the second quarter, which was above the first quarter's 1.5% expansion. Meanwhile, imports of goods and services rebounded, growing 2.2% in Q2 (Q1: -10.4% yoy) and marking the best reading since Q4 2022.

GDP outlook: Our panelists expect the economy to grow at a moderate pace in H2 on the back of strong domestic demand: Ongoing monetary policy easing and disinflation, as well as a falling unemployment rate, will underpin stronger household spending and fixed investment. A stronger-than-expected U.S. economy is an upside risk, while global agricultural and energy prices are key to track.

Panelist insight: Daniel Velandia and Diego Camacho, analysts at Credicorp Capital commented: “Looking ahead, although the lagging fiscal revenues could impose expenditure restrictions in the short term, we continue to expect public spending to be a key driver of economic growth this year. While the investment may benefit from a favorable comparison to the previous year's data (base effect), a cleaner regulatory environment will be crucial for a faster recovery in this area.” Analysts at Scotiabank Colpatria said: “The results reinforce the idea that economic activity is experiencing seasonal shocks and that the growth of the first part of the year may not be sustainable. Agricultural activity has played an important role in the economic recovery; however, this could be due to a change in the harvest cycles given the adverse weather phenomena that have occurred in the last year. In addition, consumption remains uneven in the different sectors, with good dynamics in the services sector, but putting pressure on manufacturing production.”

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