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Industrial output remains sluggish
owing to weaker external sector
In September, industrial production rose by 0.1% over the same month last
year, up from the 4.5% contraction observed in August. The improvement
was prompted by transport equipment materials production and petroleum
derivatives output, which grew by 40.2% and 20.5% respectively
year-on-year in September. On the other hand, chemical and paper products
output declined rapidly, down by 21.7% and 12.8% respectively over the
same month last year.
The weakening of the external sector as a result of the global and
regional slowdown remains the key drag on industrial performance, while
domestic demand remains relatively resilient. Panellists have again cut
their forecast for industrial output this year. The government expects
that the extension by the US Congress of the Andean Trade Preferences Act
(ATPA) through 2006 will give the external sector a boost next year. This
should benefit manufactures, particularly clothing, textiles and the shoe
industry. The government expects exports to receive an additional boost
of US$ 1.5 billion a year. As a result, employment is anticipated to rise
by as much as 300,000 in the next four years. Panellists expect
industrial production to pick up again next year.
Consumption receives boost as credit
eases but prospects remain subdued
Real retail sales in September rose by 3.8% year on year (excluding fuel
and automobile sales), which was up from 2.5% in August. The largest
expansion was observed in office furniture and equipment sales, which rose
66.8% over the same month last year but also in books, newspaper and
magazine sales (35.1%) as well as household goods sales (13.6%). Retail
businesses claim that consumer demand is receiving a boost from increased
credit availability, as interest rates have continued to fall this year.
On 7 December the benchmark DTF rate was 11.5%, down from 13.4% at the end
of last year. Central Bank data indicate that gross domestic credit to
the private sector increased 0.5% in September, down slightly from the
0.6% expansion in August, which had been the first positive monthly
increase since July 1999. According to the survey of the National
Retailers Federation (FENALCO), business confidence in the retail sector
improved further in October. The percentage of retailers who were
optimistic that sales would improve in the next six months rose from 41%
in September to 48% in October, while the percentage of pessimists dropped
from 24% to 17%.
Falling inflation and lower nominal interest rates are likely to push up
private consumption further but it will remain relatively subdued this
year, as unemployment is high at 16.8% (October 2001). Consensus data
confirms that consumption growth will be modest, down a 0.1 percentage
point from last month. The pick-up in economic activity next year and
prospects for further credit easing are likely to give only a slight boost
to consumption as public sector fiscal adjustment is likely to offset
positive developments in private consumption.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
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