Industry driving economic recovery.  Recent data releases indicate that Colombia is beginning to experience a pick up in economic activity.  The most recent data release from the National Statistical Office (DANE) indicates that industrial production is on a strong path to recovery from last year's 13.6% contraction.  In May, industrial production expanded by 12.1% compared to the same month last year - the highest growth rate experienced since March 1998.  Production of transport equipment expanded by 54.0% over May 1999, while the chemical products, textile and clothing industries all grew in excess of 30%.  Virtually all other sectors experienced double-digit growth, only the production of petroleum derivatives declined by 27.2%.  The current recovery continues to be driven by a favourable external environment for Colombian exports.  Accordingly, the National Industrial Association's (ANDI) June industry survey shows that business confidence is gradually improving.  While in May, 58.4% of the businesses surveyed described their current situation as unfavourable, this figure dropped to 56.9% in June.  The percentage of businesses that anticipate their situation to improve or remain stable in the coming six months has also improved noticeably, rising to 44.0% in June from 13.6% last month.  The key obstacles to further improvement are lagging demand, a scarcity of working capital, a lack of public security and low profitability levels, according to the surveyed businesses. 

Despite the 2.2% economic growth in the first quarter and the strong industrial expansion, unemployment continues to rise.  In late July, DANE reported that unemployment increased to 20.4% in the second quarter from 20.3% in the first quarter - the highest level in Latin America.  DANE attributes the increase to further layoffs in the retail sector and industry.  The government has announced that it plans to reduce unemployment to 10% over the next five years by generating some 600,000 new jobs per year through a combination of infrastructure and social housing projects.  Despite the historic high in unemployment, the most recent data from DANE indicates that consumption grew strongly in the first four months of the year with retail sales up 8.4% over April 1999.  Sales of office furniture/equipment and household appliances grew by over 25% for the same period, while automobile sales experienced the strongest contraction at 14.4%.  The July survey of the National Retailers Federation (FENALCO) indicates that business confidence in the retail sector continued to improve in the second quarter.  While in May 47% of the businesses surveyed claimed that their sales had dropped, the same figure fell to just 34% in June.  Additionally, 48% of the retailers were optimistic that sales would improve in the next six months, up 2 points from May.

Price pressures remain absent.  Consumer prices declined by 0.04% in July, the second monthly decline this year and the highest monthly price drop since July 1986.  Key behind the drop was the 1.4% decline in food prices in the wake of a good harvest.  Even excluding food prices, inflation reached only 0.5%.  The current trend in prices improves the chances that the Central Bank will meet its inflation target of 10% for this year.  

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