Latam Daily: Solid Peru and Colombia GDP Growth

• Peru: The economy continues at steady speed

• Colombia: GDP growth exceeds expectations amid a robust private consumption recovery

PERU: THE ECONOMY CONTINUES AT STEADY SPEED

Peruvian GDP grew 3.9% during 1Q25, accumulating four quarters with an expansion of around 4% (chart 1) and consolidating its recovery after the recession experienced in 2023, according to official figures from the National Institute of Statistics and Census (INEI).

The 1Q25 result was practically in line with our estimate of 4%, so we maintain our GDP growth projection of 3.3% for the full year 2024. All sectors registered growth (table 1), led by primary sectors linked to extractive activities, although a sustained recovery was also observed in non-primary sectors linked to domestic demand.

For 2Q25, we forecast a GDP slowdown to around 3.5%, primarily due to a statistical effect that would affect April’s GDP result due to a statistical effect—two fewer working days as Easter holidays fell in April this year, rather than in March as in 2024. Furthermore, we forecast a slower growth rate in the mining sector starting in May due to specific factors such as the temporary suspension of activities at the iron ore producer Shougang due to export logistical issues.

Evolution During 1Q24

Within the primary sectors, normal oceanographic conditions, unlike in 1Q24 when the El Niño phenomenon was recorded, have been favouring the anchovy fishing season, positively impacting the fishing (+25.2%) and primary manufacturing (+10.0%) sectors, particularly the fishmeal industry. On the other hand, the agricultural sector (+4.0%) was driven by export-oriented crops such as grapes, mangoes, and coffee thanks to favourable weather conditions.

Regarding non-primary sectors, the positive evolution in commerce (+3.4%) and services (+3.7%) stood out, benefiting from the dynamism of private consumption, explained in turn by the increase in employment and the improvement in real incomes—given the downtrend in inflation.

Finally, the construction sector has been experiencing a recovery driven by increased investment in infrastructure—due to increased public works contracts awarded through PPPs and Works for Taxes (Works for Taxes), by the dynamism of the formal real estate sector—given the downtrend in mortgage rates—and by the gradual recovery of self-construction—given the sustained improvement in population incomes.

—Pablo Nano

COLOMBIA: GDP GROWTH EXCEEDS EXPECTATIONS AMID A ROBUST PRIVATE CONSUMPTION RECOVERY

Data released by DANE on Thursday, May 15^th, showed that the economic activity expanded by 2.7% y/y, slightly above Scotiabank Colpatria’s expectations of 2.5%. In seasonally adjusted terms, economic growth expanded by 0.8% q/q, similar to the expansion observed in the last quarter of 2024 (0.9% q/q). The annual and quarterly variations suggest that Colombia is affirming an expansionary phase of its economic cycle, with a strong rebound in the services sector, and from a demand perspective, in the private consumption expansion (chart 2 and 3).

During 1Q25, the economic activity showed heterogeneous behaviour with a positive contribution from services, in line with the recomposition to more sustainable sources of growth, although with the caveat of informality that we have highlighted especially in the labour market. Positive contributions came from three sectors: commerce, transport and hotels (+3.9% y/y), agriculture (+7.1% y/y), leisure (+15.5% y/y), and public administration, health and education (+3.5 % y/y), which explained 96% of total growth. On the demand side, the main source of growth comes from the private consumption (+3.8% y/y) and the expansion of investments in machinery and equipment (+12.5% y/y) that are reflected in the rebound of imports (+11.9%  y/y). In the case of the overall investment, the expansion of the gross fixed capital investment was below 1.8%, improving compared to previous periods, partially explained by a base effect due to the significant contraction in investment during 2024. Additionally, data suggest there was an increase in inventories, and according to DANE’s explanation, the accumulation was especially in the mining, construction, and manufacturing sectors.

It is worth noting that during the 1Q25 there were mixed calendar events that affected performance: i) The additional working day due to 2024 being a leap year, which implied a high comparison base, and ii) Easter, which was celebrated in March 2024, and implied additional working days during the first quarter of 2025. Previous calendar effects were particularly noisy in the readings of sectors such as manufacturing.

In the GDP reading from the supply side (sectors, chart 4), the economic activity results show a mixed picture, in which, commerce, agriculture, leisure, and public services leverage growth, while mining, construction, and utilities sectors, which usually are representative of investment activity, partially dragged the result. In 1Q25, digging deeper in the data, retail and wholesale commerce expanded 3.9% y/y, reflected in good dynamism specially in retail sales front, where, according to our last retail sales and manufacturing output report, vehicles and telecommunications appliances sales explained the expansion in March 2025. 

Agriculture was the second sector that contributed the most to the variation (chart 5), which was explained by a greater supply of fruit and higher coffee production (+31.3% y/y). Leisure was the third main contributor, and once more, these activities remain in a positive trend due to the multiple concerts and the boost in online gambling activities.  For now, it’s good news to see expansion in sectors such as commerce and manufacturing, which decreased last year; however, the boost in informality could represent a concern to sustainable growth, as we mentioned in our last labour market report.  

In contrast, oil and mining (-5% y/y), construction (-3.5% y/y), and utilities (-1.2% y/y) recorded a negative performance. Thus, the oil and mining sector decreased and remained in a negative trend for about five consecutive quarters. The main concern in this regard is the decline in oil (-3.7% y/y) and coal production (-7% y/y), which has been reflected in a historic drop in coal exports based on export performance to date. In the case of construction, there is the seventh consecutive quarter of contraction, this time, explained by a low activity in the building sector.

From the demand point of view (chart 6), the GDP expansion was driven by consumption (+3.8% y/y)  and gross investment (+8.3% y/y). Private consumption was led by higher spending on services and non-durable goods; however, it is worth noting that durable goods recovery is taking place during a period in which the FX stability and appreciation contributed to more stable prices in imported goods. Investment continues with a recovery, this time explained by the increase in inventories with 8.3% y/y growth in gross capital formation and a 1.8% y/y growth in gross fixed capital formation. Overall, investment continues below pre-pandemic levels, with slack especially concentrated in the housing and building sectors, in which activity levels are 10% and 34% below the pre-pandemic benchmark of 2019. In the external sector, the real trade deficit widened (chart 7), and exports expanded by 2.4% y/y, which was offset by a 11.9% y/y increase in imports (which combined the effect of better domestic demand and inventory accumulation). With this result, the trade deficit increased from 8.9% of GDP in 1Q24 to 11.0% of GDP in 1Q25.

Our take on yesterday’s data is that the economic recovery is gaining traction, demonstrating the traditional resilience in households’ consumption. For now, we maintain our 2025 GDP forecast at 2.6% y/y. Regarding monetary policy, as we have highlighted in previous reports, the negative output gap was a common argument for calling for the continuation of the easing cycle, and despite recent data showing that this gap is closing, the lack of investment performance still favours the opportunity of having lower rates. The surge in inflation and fiscal uncertainty keeps the central bank’s board cautious. However, in Scotiabank Colpatria we believe the central bank has some room to cut the interest rate at the June and July meetings by 25 bps each one, in the second half implementing rate cut is more challenging as inflation could rebound but also due to the context of international market volatility and still-challenging domestic fiscal accounts.

Highlights:

• On the supply side in the Q1-2025, commerce (which include transport and hotels), agriculture, leisure and public services contributed around 96% of economic growth. Commerce grew by 3.9% y/y (0.4% q/q SA) with a contribution of 0.7 p.p., followed by agriculture that registered an expansion of 7.1% y/y (-0.2% q/q SA), and leisure with an expansion of 15.5% y/y (4.1% q/q SA) with a contribution of 0.6 p.p. Public services (which include health and education services) increased by 3.5% y/y (0.6% q/q SA), followed by services such as real estate (2.1% y/y and 0.5% q/q SA) and financial services (3.3% y/y and 1.0% q/q SA). Manufacturing remained with its positive trend with a boost of 1.4% y/y (0.2% q/q SA) mainly explained by an expansion of apparel.
• On the negative side, oil and mining, construction and utilities were the ones that offset growth. Mining industries drop by -5.0% y/y (0.2% q/q SA), subtracting -0.2 p.p. of total result, remained in negative trend for about five consecutive quarters. Besides, construction activities reversed the positive trend and registered a drop of -3.5% y/y in the period (-1.8% q/q SA), that is mainly attributed to the decrease of 7.0% y/y (-3.4% q/q SA) in building sector which has registered negative results for about seven consecutive quarters; the good dynamic in civil infrastructure works which increased by 3.8% y/y (0.2% q/q SA) partially offset the negative trend. Finally, utilities registered a decrease of -1.2% y/y (0.3% q/q SA).
• Private consumption drove the domestic demand result, and the public spending registered a recovery. Domestic demand increased by 4.6% y/y (0.9% q/q SA). The private consumption contributed the most and continues with positive trend with an increase of 3.8% y/y (1.9% q/q SA) and continues above the long-term consumption trend for Colombia but with a more sustainable level. Thus, the household consumption reflected higher spending on services (3.3% y/y), non-durable goods (3.5% y/y) and durable goods (14.6% y/y), while spending on semi-durable goods remain in positive trend with an increase of 7.2% y/y. In contrast with last year, government spending grew by 4.3% y/y (-0.9% q/q SA) during this period. However, it is worth noting that in 2025, the economic activity is expected to continue showing a recovery on the private consumption side, as the public sector faces a huge liquidity constraint and reduction on its investment budget.  
• In the case of investments, gross capital formation expanded by 8.3% y/y (0.2% q/q SA) and investment expanded by 1.8% y/y (-5.3% q/q SA). These results suggested that inventories increased during the first quarter. In the case of investment, the main contributors were machinery and equipment (12.5% y/y), biological resources (11.1% y/y), but offset by housing (-8.6% y/y) and other buildings (-4.5% y/y). It’s important to note that investment is still weak and represent 17% of GDP, below what it used to be five years before the pandemic ~ 22% of GDP.
• On the external balance side, the increase on exports moderated the widening trade deficit. Thus, exports increased by 2.4% y/y (-0.8% q/q SA) and contributed with 0.5 p.p., while imports had a variation of 11.9% y/y (2.2% q/q SA), offsetting with -2.6 p.p. to the general growth result. It is worth noting that imports of goods expanded by 16.1% y/y in the Q1-2025, slightly offsetting the contraction of one year ago (-14.2% y/y).

Economic Activity Indicator (ISE):

• In March, the ISE grew by 4.5% (-0.9% q/q SA) compared to March 2024, with 9 of the 12 activities showing positive variations (chart 8). The growth was mainly due to an increase in agriculture of 16.3% y/y with a contribution of 1.5 p.p., leisure with an increase of 14.7% y/y and a contribution of 1.0 p.p, commerce, transport, and hotels with an expansion of 5.4% y/y and a contribution of 1.0 p.p, and public services (which include health and education services) which increased 4.0% y/y and contributed by 0.6 p.p. On the negative side, oil and mining recorded a drop of -5.8% y/y subtracting 0.3 p.p. of the result, followed by utilities which contracted by -1.2% y/y subtracting 0.1 p.p. The boost to economic activity in March was partly due to a base effect from Easter, which was in March 2024 and resulted in additional working days during the first quarter of 2025.  This is reflected in a 2.8% y/y increase in the seasonally adjusted series.

—Jackeline Piraján & Valentina Guio