Weak Colombian GDP Boosts Petro’s Case for Faster Rate Cuts

(Bloomberg) -- The Colombian economy performed worse than expected in the second quarter, bolstering President Gustavo Petro’s arguments for faster monetary easing.

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Gross domestic product expanded 2.1% from a year earlier, compared to the median forecast of 2.8% of 19 analysts surveyed by Bloomberg.

Growth was led by agriculture, while the oil and mining, communications and manufacturing sectors all contracted. Output increased 0.1% from the previous quarter.

The economic activity index, a proxy for GDP, shrank 1.1% in June, its worst performance in nine months.

“The demand side, especially investment in machinery and construction, is still lagging and this suggests that the recovery of the economy will be very gradual,” said Sergio Olarte, an economist at Scotiabank Colpatria. “This should help strengthen the argument that the central bank could begin to lower its interest rates more rapidly.”

President Gustavo Petro has repeatedly expressed his frustration with slow economic growth, which he blames on the central bank’s refusal to cut interest rates faster. Before today’s report, the finance ministry forecasts economic growth of 1.7% this year, accelerating to 3% in 2025.

Last year, output grew at its slowest pace since 1999, excluding the pandemic.

The administration said it will submit a package of measures to congress to revive growth, including lowering the 35% corporate tax rate. However, it will also send a tax bill to raise $3 billion to finance the 2025 budget.

Another government proposal includes forcing backs to lend at low interest rates to strategic sectors, including manufacturing, agriculture, housing, and tourism.

The central bank has cut its benchmark interest rate by 2.5 percentage points since December, to 10.75. It has so far resisted calls for faster easing, for fears that inflation will take too long to slow to its 3% target.

--With assistance from Robert Jameson.

(Adds analyst comment in fifth paragraph.)

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