Continued moderation in consumer price increases in January has served to ease inflationary concerns for this year and promises to mitigate substantial interest rates hikes.  A favourable interest rate environment bodes well for an investment and consumption rebound further bolstering economic recovery.

Economic prospects improving.  While official growth figures for last year are not scheduled for release until 30 March, preliminary Finance Ministry data indicate that the economy grew around 3.0%.  Recent data releases corroborate that economic activity continued to accelerate in the fourth quarter and is likely to have reached the 3.0% growth.  The National Statistical Department (DANE) reports that industrial production continued along a strong expansion path in November with output growing 10.9% over the same month in 1999.  Driving the strong production spurt were the paper products, transport equipment and textile sectors, which experienced 36.4%, 29.4% and 25.1% growth respectively.  The only sectors not to register double-digit growth were food, clothing and non-metal mineral products, which grew 0.7%, 7.3% and 9.3% respectively.  Industry continued to be propelled by the favourable external conditions and a competitive exchange rate but also increasingly by a pick-up in domestic demand.    The Consensus Forecast expects industry to have grown strongly in 2000.  This year, industrial output growth should moderate somewhat due to the higher comparison base in 2000.

Investment recovery underway.  Investment also appears to be on the gradual pace to recovery.  While overall imports of capital goods remained down 2.0% in November over the same month last year, several sectors are experiencing a strong investment rebound, in particular construction and agriculture, where capital good imports were up 67.5% and 129.2% respectively.  However, industrial capital good imports rose at a much slower 4.6%.  On the downside, imports of transport equipment were half their 1999 levels.  Nevertheless, this month’s Consensus Forecast indicates that gross fixed investment last year is likely to have grown over 1999 and is expected to expand further this year.

Consumption on stable path.  Consumption is also likely to have continued recovering.  According to DANE, national retail sales were up 6.6% (+7.4% excluding fuels and automobile sales) in November over the same month in 1999.  Strongest growth was registered in office furniture/equipment, (+50.5% year-over-year) leather goods (+21.3% yoy) and household appliances sales (+19.9% yoy), while automobile sales remained depressed, showing the strongest contraction at 6.1%.  The most recent release of the National Retailers Federation (FENALCO) for business sentiment in the retail sector mirrors the improvement in the consumption pick-up towards the end of last year.  Of the business surveyed 43% claimed that sales had increased over the same month in 1999, up from 33% in October.  On the downside, the number of retailers that were optimistic that sales would improve in the next six months dropped to 49% from 54% in October.  Simultaneously, the number of businesses that expected sales to decline rose from 11% to 19%.  FENALCO attributes increased pessimism to the uncertainty about the potential impact that the new tax reform will have on consumers’ wallets and lingering concerns about the peace negotiations between the government and rebels groups.  This month’s Consensus Forecast expects consumption (public and private) to have expanded moderately for the year.  Moreover, this year consumption is expected to continue to grow at low levels, as tighter fiscal policy will restrain growth.

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