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Colombia Recovers Faster-Than-Expected From Worst-Ever Slump

Oscar Medina
·3 min read

(Bloomberg) -- Colombia’s economy grew faster than expected at the end of 2020 as a rebound in consumer spending led the recovery from the worst slump in the nation’s history.

The economy expanded 6% in the last three months of the year compared to the previous quarter, beating the median forecast of 5.7% growth from analysts surveyed by Bloomberg.

The recovery was led by a 17.8% surge in retail activity as authorities eased curbs designed to slow the spread of Covid-19 infections. Even so, that partial revival wasn’t enough to offset the devastation caused when the pandemic hit earlier in the year.

For the whole of 2020, the economy contracted 6.8%, the national statistics agency said Monday. That’s its worst year since records began in 1905, leaving the country wracked by soaring debt, mass unemployment and hunger. GDP shrank 3.6% in the fourth quarter from a year earlier.

Avianca Holdings SA was among the thousands of companies that went bankrupt, and Central Bank Governor Leonardo Villar said this month that the economy won’t recover its pre-pandemic level of output until the end of 2022.

The pace of the recovery is likely to slow in the first quarter, after a rise in infections caused authorities to reimpose some controls, research company Capital Economics wrote in a report.

Pandemic-related spending and a fall in tax revenues caused the fiscal deficit to rise to about 9% of GDP in 2020, up from 2.5% the previous year. That’s put Colombia’s investment grade credit rating at risk, and left the government looking for ways to boost revenues to prevent a downgrade. Government debt rose to 68% of GDP last year, from 36% a decade ago.

Read More: Colombia Seeks to Raise at Least 1.5% of GDP With Fiscal Reform

The crash came as the country was struggling to cope with the fallout from Venezuela’s crisis, which has driven about 1.7 million migrants to seek refuge in Colombia.

Colombia’s statistics agency said last year that 29% of of households aren’t eating three meals a day, compared to 11% before the pandemic.

More than one million jobs were destroyed over the course of the year, leaving Colombia with an urban unemployment rate of 16%, among the highest in the Americas.

Extra Stimulus

Policy makers have held interest rates at record low of 1.75% for four months in a row, but last month two board members called for extra stimulus.

Economists at the central bank expect the economy to rebound by 4.5% this year, led by a recovery in internal demand.

Colombia published its GDP figures before most of its peers. The country’s 2020 contraction compares with expected falls of 12% in Peru, 6% in Chile and 4.5% in Brazil according to analysts surveyed by Bloomberg.

(Updates with recovery in retail spending from first paragraph)

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