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Rebound
underway. The National
Statistical Institute (DANE) released final second quarter Gross Domestic
Product (GDP) figures in September. According to the data, the
economy expanded by 3.5% in the second quarter over the same quarter in
1999, well below the 3.9% second quarter growth figure released by the
National Planning Department (DNP) in August but a substantial improvement
over the first quarter 2.2% expansion. Thus for the first half of
this year, the economy expanded 2.9%. The key driver behind the
economic rebound in the second quarter was an 11.7% expansion over the
same quarter last year in the manufacturing industry, which continues to
benefit from favourable export conditions and gradually recovering
domestic demand. The agricultural sector received a 6.6% boost,
primarily attributable to higher coffee production. The construction
and financial services sectors exhibited first signs of recovery with 1.3%
and 0.3% growth respectively following nine consecutive quarterly
contractions since the last quarter in 1997.
Simultaneously,
DANE published global supply and demand figures, which indicates that
domestic demand received a boost from strong investment growth and, to a
lesser extent, from a recovery in consumption.
Gross fixed investment expanded 19.8% in the second quarter over
the same quarter in 1999, up from 7.6% in the first quarter.
Consumption grew by 2.3% over the same quarter last year, remaining
at the same levels observed in the first quarter.
Industrial
production data from July indicates that the industry continued its
expansion, reaching 13.9% growth over the same month last year.
The strongest growth sectors were transport equipment, chemical and
paper products industries, which experienced 32.1%, 28.5% and 27.9% growth
respectively.
Panellists remain optimistic about the prospects for industry this
year with growth anticipated to reach 7.4%, up 0.3% from last month’s
survey.
Despite
historically high unemployment (Q2 20.4%), consumption continued to grow
in July with real retail sales up 3.5% over July 1999.
Sales of household appliances grew by over 20.2% for the same
period followed by metal, glass and paint goods and clothing sales, which
grew by 14.0% and 10.7% respectively.
The August survey of the National Retailers Federation (FENALCO)
indicates that business confidence in the retail sector continued to
improve.
While in July 52% of the surveyed businesses claimed that their
sales would improve in the next six months, the same figure rose to 55% in
August.
The
continued improvement in economic indicators has affected the growth
outlook in this months’ Consensus Forecast, which has improved again.
A more optimistic growth outlook is also reflected in next year’s
growth figure, which was raised from last month.
Nevertheless, the current forecast remains below the government’s
expected growth rate of 4.0%.
Inflation
continues on downward path.
Despite the pick-up in economic activity, consumer price increases remain
contained. Consumer prices increased 0.4% in September over August.
As a result, annual inflation increased to 9.2% in September from 9.1% in
August, still below the government’s 10% target for this year.
Transportation costs accounted for a largest share of the price increase
due to rising gasoline prices, while food prices spiked as a result of the
end of the harvest season, which is tightening supply. This
month’s Consensus Forecast indicates that participants have become more
optimistic regarding the inflationary outlook for the remainder of the
year. The improved inflation outlook should help avert any
substantial hikes in interest rates for the remainder of the year, which
in turn will help sustain the current growth trend. The benchmark
DTF interest rate rose only modestly in September to reach 13.0% by the
end of the month. This month’s Consensus data indicates that
interest rates are likely to climb a bit towards the end of the year.
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