(Bloomberg) -- Colombia’s economy beat expectations in the second quarter in a boost for the government of President Gustavo Petro, who took office this month.
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Gross domestic product expanded 12.6% from a year earlier, the national statistics agency said Tuesday. That compares to a median estimate of 12.1% from economists surveyed by Bloomberg.
The stronger-than-expected economy will help the new administration by boosting tax revenue. The government is struggling to cut the fiscal deficit while also funding welfare programs that Petro promised during the campaign.
The second quarter expansion was led by the retail sector, which grew 23%, and by a 20% increase in manufacturing activity. Oil and mining was the weakest sector over the period. GDP increased 1.5% from the previous three previous months. The growth took place while Petro’s predecessor President Ivan Duque was still in office.
The International Monetary Fund forecasts Colombia will grow the most among major Latin American economies this year.
What Bloomberg Economics Says
“Outsize second-quarter GDP growth in Colombia showed rising activity and domestic demand have not lost momentum. Activity was already above potential, and excess domestic demand may add to inflationary pressures and contribute to large external imbalances. We expect the central bank to continue raising interest rates, with bigger hikes and/or a longer tightening cycle possible.”
-- Felipe Hernandez, Latin America economist
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Petro has pledged to transform Colombia’s economic model to one that doesn’t depend on fossil fuels. On his first day in office last week, his government sent a bill to congress to impose a windfall tax on oil and mining companies, and reduce tax breaks for the rich.
Read more: Petro Targets Rich Colombians and Oil Exports With New Taxes
After the economy’s strong recent growth, the central bank estimates that it is now operating at close to its full capacity. The bank has raised its policy rate 6.5 percentage points this year, to 9%, to curb the fastest inflation in more than two decades.
The recovery, and the global spike in food and fuel costs, sent the annual inflation rate to 10.2% last month, its fastest pace since 1999.
(Adds oil and mining result in 4th paragraph.)
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