Economy shrinks at a more moderate pace in Q3

GDP contracts for the third consecutive quarter: Seasonally adjusted GDP contracted 1.5% in annual terms in Q3, improving from Q2’s 4.0% fall. Still, the result marked the third consecutive quarter of contraction, suggesting that the economy remains weak. On a quarter-on-quarter basis, seasonally adjusted GDP dropped 0.2% in Q3, following the previous quarter's 1.1% decrease and marking the softest contraction since Q4 2023.

Domestic demand leads the improvement: Looking at the details of the release, domestic demand was the main driver of the improvement. Household spending bounced back, expanding 2.9% year on year (Q2: -1.8% yoy s.a.), bolstered by accelerating remittances inflows and lower inflation. Moreover, fixed investment fell at a more moderate rate of 6.2% (Q2: -7.9% yoy s.a.), and government spending declined at a softer pace of 1.0% (Q2: -1.5% yoy s.a.). On the external front, exports of goods and services contracted by 5.1% in Q3 (Q2: +1.6% yoy s.a.), hampered by declining oil production amid the Block 43 oil field shutdown, and marking the worst result since Q1 2021. Meanwhile, imports of goods and services growth slowed to 0.3% in Q3 (Q2: +5.4% yoy s.a.).

GDP outlook: Our panelists have penciled in a rebound for Q4; declining inflation and lending rates should have supported household budgets, and therefore private spending in turn. In 2025, our Consensus is for the economy to return to growth following 2024’s decline due to rebounds in all domestic demand components. That said, growth will remain below its pre-pandemic decade average of 3.6% as exports are expected to lose some steam this year, hindered by U.S. import tariffs.

Panelist insight: Oxford Economics’ Mauricio Monge commented on the 2025 outlook: “Private demand is expected to recover […] mainly due to base effects, as market conditions for consumers and businesses will remain tough. Yet, risks are tilted to the downside. A worsening security situation and an extension of the ongoing electricity shortages will cut growth next year.”

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