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The declining trend in inflation persists
and has enabled the Central Bank to continue to lower interest rates, which
should serve to bolster economic activity, as consumers and companies
benefit from an improved credit setting. The economic downturn in Venezuela
will exert downside pressures on exports but is likely to be offset by an
increased global demand and higher oil prices. |
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Signs for an economic pickup mixed
despite consumption pickup
Recent indicators show that economic activity is likely to have picked up
moderately at the beginning of this year. The Consensus expects 1.8%
annual growth in the first quarter driven by exports and an improved
domestic credit environment combined with lower interest rates, which are
likely to have bolstered domestic demand.
According to the National Statistical Department (DANE) real retail sales
(not including fuel sales) rose 2.6% in February over the same month last
year. Key behind the improvement was strong growth in automotive, office
furniture and equipment and household goods sales. On the downside,
household repair items and paper product sales dropped in February over
the same month last year. The decline in unemployment observed in the
first three months of the year (from 20.4% in January to 17.7% in March),
increased consumer confidence and together with lower interest rates has
helped drive a recovery in consumption.
The picture for consumption in the final month of the first quarter is
mixed. The more recent April retail survey of the National Retailers
Federation (FENALCO) shows that consumption is likely to have slowed
notably in March. Of the total businesses surveyed 29.0% claimed that real
retail sales rose over the same month in 2001, which was down from 41.0%
for February. However, according to data from the National Chamber of the
Automobile Industry (COLMOTORES), automobile sales – the backbone of
recent retail sales recovery – remained solid in March. Automobile sales
grew 15% over the same month last year, driven by special dealer offers
and lower interest rates.
The Consensus expects consumption to have picked up moderately in the
first quarter, driven principally by the recovery in retail sales, while
public consumption is likely to have remained more subdued due to the
government’s desire to keep fiscal reins tight. Growth this year, however,
is expected to remain subdued.
Industrial
output remains constrained by slow export pickup
In February, industrial production rose 3.0% over the same month last year,
which was down from the 10.4% expansion registered in January. DANE claims
that the downturn resulted from a slump in non-traditional exports,
principally lower chemical product, textile and paper sales to key export
markets, including the United States and Venezuela, whereas domestic sales
remained in positive territory. While the economic slowdown in Venezuela
(14.1% of total exports in 2001, of which 60.1% were industrial) is likely
to put additional downside pressure on industrial production, this may be
offset by stronger demand growth in the United States (42.6% of total
exports in 2001, of which 20.6% were industrial). Furthermore, a lower
interest rate environment and improved credit conditions are likely to
give a boost to demand and industry is likely to benefit. Consensus
participants expect industrial output to pick up this year with growth
reaching 2.6%, up from the sluggish 1.6% expansion last year.
Gross Domestic Product (GDP) growth is likely to accelerate this year as a
more favourable inflation environment is likely to enable the Central Bank
to bring down interest rates further and a more propitious setting for
global demand and international oil prices is likely to bolster the export
sector. Consensus participants expect growth to accelerate in the first
half of this year and to level out in the second half. The improved growth
prospects should carry over for next year with economic activity picking
up further.
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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