Economy records sharpest fall in more than three years in Q2

GDP reading: GDP fell 2.2% year on year in the second quarter, contrasting the 1.2% expansion logged in the first quarter and marking the worst reading since Q1 2021. On a seasonally adjusted quarter-on-quarter basis, GDP declined 1.9% in Q2, contrasting the previous quarter's 3.5% growth.

Insecurity weighed on Q2 growth: Looking at the details of the release, household spending declined at a steeper pace of 2.2% year-on-year in Q2 following a 1.1% contraction in Q1, and government consumption dropped at the sharpest pace since Q4 2020, contracting 0.6% (Q1: -0.3% yoy). Moreover, fixed investment fell 8.2% in Q2 (Q1: -1.3% yoy), likely as a consequence of waning investor confidence due to political uncertainty and high insecurity. On the external front, exports of goods and services bounced back, growing 1.9% year on year in Q2 (Q1: -0.5% yoy), logging the best reading since Q2 2023. Higher exports of oil, seafood and minerals drove the reading. In addition, imports of goods and services rebounded, growing 0.2% in Q2 (Q1: -3.3% yoy).

GDP growth to stay muted this year: Our panelists forecast the economy to rebound through the end of 2024. However, the expansion over 2024 will be muted and well below the Latin American average. Momentum is then expected to recover in 2025.

Panelist insight: Commenting on the release, Sergio Armella, economist at Goldman Sachs, stated: “Looking ahead, we expect a rebound in activity in the third quarter of the year. Electricity shortages, however, remains a point of vulnerability and power outages could continue in the fourth quarter of the year. Forest fires and blackouts in September already represent a concern. After [the Q2] print, we left our real GDP growth forecast for 2024 unchanged at 0.3%.”

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