|
Industrial
production contracts for second consecutive quarter
In
September, industrial production contracted 3.3% over the same month last
year, which represented an improvement compared to the 9.2% contraction
registered in August (previously reported: -8.8% year-on-year). The
September contraction was broad-based, with 28 of 48 production categories
losing ground over the same month the year before. That said, the main
drivers of the September contraction were strong declines in vehicle
manufacturing and sugar production. As a result of the weak September
reading, industrial production contracted 4.0% annually in the third
quarter, down from the 0.6% contraction registered in the second quarter.
Furthermore, annual average growth in industrial production continued to
decline, falling from 2.0% in August to 1.2%, which represented the
slowest pace in more than five years. Consensus Forecast participants
anticipate industrial production growth to accelerate slightly to 1.6% in
2008, which is down 0.3 percentage points from last month’s forecast. In
2009, the panel expects industrial production to speed up to 2.7%.
Economic
slowdown to continue
Even
before the worst of the credit crunch took hold, economic growth in the
country was already decelerating, as waning domestic demand caused the
economy to expand at the slowest pace in five years during the second
quarter. With the financial crisis unfolding, the slowdown on the
domestic side appears to be deepening. In September, retail sales fell
2.5% over the same month the year before, which came in below the 0.8%
contraction recorded in August and represented the largest contraction
observed in over five years. Going forward, declining consumer confidence
does not bode well for consumer spending. In September, the consumer
confidence index (ICC) published by Fedesarrollo fell 3.5 points,
from 18.3 in August to 14.8 points. Notwithstanding a severe dent in
confidence in July, the reading represented the lowest figure in more than
three years. The decrease reflected strongly deteriorating perceptions
about the country’s macroeconomic situation. Although the index remains
above the 0-point threshold that separates optimism from pessimism, it has
deteriorated notably during the past months as consumers take into account
the effect of the global financial turmoil. Meanwhile, exports continue
to lose steam, as demand from the country’s two major trading partners,
the United States and Venezuela, is decreasing substantially. Moreover,
falling commodity prices will exacerbate the slowdown in exports.
International commodity prices have already experienced a huge correction
in anticipation of slowing demand in the world’s advanced economies.
Prices for oil, which accounts for one quarter of total Colombian exports,
have lost more than half of their value, after reaching a record high in
July. Amid the rapidly deteriorating prospects of the global economy,
Consensus Forecast panellists expect exports growth to slow from an
estimated 25.1% this year to a 0.3% contraction in 2009, which would
constitute the slowest pace since 2002. However, exports may be helped by
gaining new trade partners. After unsuccessfully trying to sign a free
trade agreement with the United States, the country has opted to broaden
its range of trading partners. On 22 November, during the meeting of the
Asia Pacific Economic Cooperation (APEC) in Peru, the country inked free
trade agreements with both Canada and China. Furthermore, on 1 December,
the country signed agreements with Norway, Switzerland, Iceland and
Liechtenstein.
Currently, monetary authorities expect that the economy will expand 3.5%
this year, and 3.0% in 2009,
which would represent the slowest rate of expansion in seven years.
Consensus Forecast panellists have recently revised their outlook for 2008
downward to 3.7%, which is 0.1 percentage points below last month’s
Consensus. For next year, the panel is more pessimistic than the Central
Bank and has revised its forecast down 0.4 percentage points to 2.9%.
Inflation
drops from seven-year high
In
November, consumer prices added 0.28% over the previous month, which came
in below the 0.35% price increase observed in October and was broadly in
line with market expectations of 0.27%. The primary drivers of the
November reading were price increases in food and beverages as well as in
housing. As a result of the subdued price increase in November, annual
headline inflation fell to 7.7%, down from 7.9% observed in October, which
had represented the highest rate in more than seven years. At the current
level, inflation well exceeds the upper end of the Central Bank’s target
range of 3.5% to 4.5% for 2008. Despite high inflation, on 21 November
monetary authorities decided to keep the benchmark interest rate unchanged
at 10.00%. Monetary policy makers reiterated their commitment to
supplying the market with liquidity in the wake of global financial market
jitters and left the door open to monetary loosening if inflationary
pressures continued to ease. The Central Bank also set the inflation
targets for 2009 and 2010. For 2009 monetary authorities target inflation
between 4.5% and 5.5%. For 2010, policy makers have set their target at
4.0%. The next policy meeting is scheduled for 19 December. Consensus
Forecast panellists expect inflation to further moderate to 7.2% by the
end of this year, which is up 0.3 percentage points from last month’s
estimate. Next year, panellists anticipate inflation to moderate to 5.2%,
which is within the Central Bank’s target range.
|
