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Economic growth is
currently undergoing a healthy rebound. The favourable economic setting
appears set to remain in place for the time being, as the pick up in
international demand, particularly in key export destinations, promises to
foment the export sector further. The favourable developments in the
external sector will be complemented by continued expansion in domestic
demand, as interest rate levels remain low and unemployment declines. |
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Government confirms healthy growth last
year
In the fourth quarter gross domestic product (GDP) grew 4.3% over the same
quarter in the prior year. The fourth quarter figure was above the 4.1%
growth observed in the third quarter and exceeded market expectations.
The recovery continued to be broad-based, as all economic sectors
registered positive growth in the fourth quarter. The key drivers behind
the strong fourth quarter performance were construction (Q4: +14.5% year-on-year;
Q3: +10.4% yoy); transport, storage and communications (+5.5% yoy; Q3:
+4.7% yoy) and mining (Q4: +5.5% yoy; Q3: +21.2% yoy). The only sectors
to experience a more moderate pick up in economic activity were financial
and public services with growth rates of 2.6% yoy (Q3: +6.0% yoy) and 2.7%
(Q3: +0.2% yoy) respectively.
Domestic demand bolstered by lower rates and improved credit conditions
Data for aggregate demand have not yet been published. However, trade
data suggest that investment remained strong through the final quarter of
the year, as capital goods imports were up 11.2% in the fourth quarter
over the same quarter the previous year (Q3: +17.0% yoy). Similarly,
private consumption also appears to have remained resilient through the
end of the year. According to DANE, retail sales rose an annual 4.0% in
the final quarter of last year, which was up from the 0.7% figure observed
in the third quarter.
As a result of the strong fourth quarter GDP figure, economic growth for
the full year was boosted to 3.6%, which was above the preliminary figure
of 3.5% from the National Planning Department (DNP) reported in January.
Consensus participants see economic growth slowing very moderately this
year, as export growth accelerates amid growing international demand and
the pick-up in key export destinations such as the United States and
Venezuela. Furthermore, even though interest rates will rise, levels will
remain historically low, which in combination with declining unemployment
is likely to keep domestic demand growth healthy. As a result, Consensus
Forecast panellists expect the economy to grow 3.5% this year, which is
still below the government’s 3.8% projection but is up 0.1 percentage
points from last month’s Consensus Forecast figure. The government is
more optimistic that the U.S. economic recovery and strong investment will
help lift economic activity further this year. The favourable growth
trajectory is expected to be sustained into next year, when growth is
expected to reach 3.5%.
Exchange rate strengthens further despite counter-measures
In February, the currency appreciated 1.3% over the prior month, closing
at 2,687 pesos to the US$. The February strengthening in the exchange
rate was the fifth consecutive monthly appreciation and had the currency
trading 3.4% stronger than at the end of last year. The current
appreciation is the result of a combination of factors such as increased
investor appetite for emerging market debt, higher remittances from
Colombians living abroad, rising confidence in healthy growth prospects
and improved sentiment about security within Colombia. Nevertheless,
concerns about the adverse effect of a stronger exchange rate on the
export sector have prompted authorities to adopt several measures to stem
the currency appreciation, including direct intervention in the foreign
exchange market by the Central Bank, tighter guidelines for financial
institution’s US$ positions, Finance Ministry purchases in the spot market
to cover future debt servicing and a government commitment not to convert
proceeds from international debt issuances to pesos. Consensus Forecast
participants expect the current appreciation trend to reverse by the end
of the first quarter with the currency weakening gradually throughout the
year to close at 2,934 pesos to the US$ - a 5.3% nominal annual
depreciation. In 2005, the currency is anticipated to follow a similar
weakening trend depreciating 5.8% to reach 3,115 pesos to the US$ by year-end. |
