GDP growth ebbs in the third quarter

Economic expansion disappoints markets: The economy lost momentum in the third quarter, with annual GDP growth moderating to 2.0% from 2.1% in Q2. The reading fell short of both the Central Bank’s projections and market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth edged down to 0.2% in Q3 from the previous period's 0.5% increase, marking the slowest rise since Q4 2023.

Government spending and net trade deteriorate: Domestically, government spending was the main drag on GDP growth, swinging into a 4.3% contraction (Q2: +4.8% yoy); public coffers were strained in Q3 as the government was forced to pause a proposed diesel price hike. In addition, fixed investment growth moderated to 4.0% in Q3 from Q2’s 4.3%. More positively, private consumption sped up to 1.6% year on year in the third quarter (Q2: +1.2% yoy), which marked the best reading since Q1 2023; higher real wage growth and a tighter labor market supported household purchasing power. On the external front, exports of goods and services growth waned to 3.8% in Q3 (Q2: +5.6% yoy). Conversely, imports of goods and services growth picked up to 11.0% in Q3 (Q2: +3.0% yoy), marking the best reading since Q3 2022. Overall, net trade detracted from the headline reading.

GDP growth to accelerate in 2025, but downside risks loom: Our panel expects the economy to be expanding at a broadly similar pace to Q3 in Q4: A further deceleration in exports is forecast to be offset by a slower fall in public spending and faster increases in private spending and fixed investment. Economic growth will then rise steadily through Q4 2025, fueled by interest rate cuts and lower inflation. As a result, our Consensus is for the economy to accelerate to around its past-decade average of 2.8% in 2025 as a whole. That said, risks are tilted heavily to the downside and include a looming energy crisis—as a result of underinvestment in the hydrocarbons sector, disruptions to hydroelectric output and a recent resurgence in rebel attacks on the oil sector—a rising fiscal shortfall and social unrest.

Panelist insight: Goldman Sachs’ Santiago Tellez commented: “We continue to expect positive but below-trend real growth in upcoming quarters—bolstered by resilient household demand and slowly recovering machinery & equipment but dragged by still-soft housing investment, which remains the main downside risk to our growth forecast. Policy uncertainty will continue to bear on growth. These headwinds will be partially mitigated by robust workers’ remittances in local currency, further disinflation gains, and the progressive normalization of the policy stance.” Analysts at Itaú Unibanco said: “Activity has shown signs of gradually recovering, although at an uneven pace across sectors. We expect the economy to grow 2.0% this year (0.6% in 2023), where the lagged effect of a monetary policy that continues to be contractionary and a gradual disinflationary process will restrict a more significant rebound in activity.”

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