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Private consumption recovery remains
absent
A decline in real incomes resulting from accelerated currency depreciation
and relatively high unemployment (17.8% in March) remain key impediments
to a recovery in private consumption. According to DANE, real retail sales
(excluding fuels) dropped 0.21% in January 2003 compared to the same month
last year, which was down from the 0.71% growth observed in the prior
month. The government’s current fiscal adjustment agenda is also likely to
exert further downward pressure on total consumption this year.
Nevertheless, according to estimates from the National Planning Department
(DNP), gross domestic product (GDP) expanded approximately 3% in the first
quarter, bolstered by a strong performance of the construction sector and
continued healthy growth in agriculture and industry. However, the
prospects of a deep recession and continued uncertainty about economic
policy priorities in Venezuela in addition to the less than propitious
economic outlook in the United States are likely to put further downward
pressure on the export sector. Given that domestic demand is likely to
remain subdued, economic activity as a whole is likely to suffer. In fact,
according to Consensus panellists, GDP growth is expected to accelerate
only moderately from last year’s moderate 1.9% pace this year. The figure
is unchanged from last month but remains above the government’s 2.0%
estimate.
Tax reforms promise to bolster
fiscal accounts but concerns linger
According to the Finance Ministry, tax revenues increased 27.1% in the
first quarter over the same quarter last year. The 8.05 trillion peso (US$
274 million) tax take in the first quarter exceeded the government’s
expectations, which had seen the figure slightly lower. The favourable
result is likely to bolster the government’s confidence in achieving the
2.5% of GDP fiscal target agreed to with the International Monetary Fund (IMF)
under the terms of the US$ 2.1 billion stand-by agreement approved on 15
January. However, the government remains concerned about the possibility
that a more moderate economic rebound this year could undermine fiscal
targets. On the domestic side of the economy, the prospects for higher
interest rates threaten to choke off the economic rebound and on the
external side, growth prospects could be undermined by deceleration in
economic activity in key export destinations, the United States and
Venezuela. In fact, participants expect the fiscal deficit to come in
higher than currently anticipated by the government. The positive effects
of the government’s current fiscal initiatives are expected to be
reflected next year, as the imbalance in public accounts is anticipated to
narrow. |
