At
the end of March, the IMF approved the government’s current economic
policy agenda, which provides Colombia with continued access to IMF
credit. In addition to further fiscal reform, the government has
pledged comprehensive pension reform and new laws governing the financial
system.
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Growth
consolidating.
Recent economic data releases point towards a further strengthening of
economic recovery this year. The national statistical department
(DANE) reports that industrial production rose 6.7% in January over the
same month last year. The strongest sectors were transport
equipment, paper and non-metal minerals, which experienced 36.8%, 18.8%
and 13.9% growth respectively. The beverage industry was the only
sector that experienced a contraction (-27.0%) over the same month last
year. Even though industrial output growth remains healthy, the
January data confirm that growth rates are slowing due to the higher
comparison base last year. Since peaking in August at 16.0%,
industrial output growth has moderated. Nevertheless, panellists
remain fairly optimistic about industrial production in the first half
this year and only see some moderation in the second half.
Consumption
growth moderating.
According to DANE’s most recent retail sales data, consumption continues
to grow but at a more moderate pace. In January, retail sales
increased 2.4% (+2.9% excluding fuels and automobile sales) over January
last year. Growth in sales of office furniture/equipment and
household items reached 24.9% and 16.4% respectively for the same period,
while automobile sales continued to drop (-7.5% year-over-year), the
strongest contraction of all sectors. This month’s Consensus
Forecast anticipates consumption to remain weak as the improvement in
credit conditions and lower interest rates continue to be offset by high
unemployment (20.5% in January), an increased tax burden and lingering
concerns about civil war violence.
Investment
to drive economy.
The more competitive exchange rate, improved credit conditions and
declining interest rates are likely to continue to drive the strong
investment expansion. This month’s Consensus Forecast indicates
that investment rebounded strongly last year from the 32.1% investment
contraction experienced in 1999. January trade data indicate that
investment growth continues to be focused in industry where imports of
capital goods increased by 34.1% over the same month last year.
Similarly, construction investment is growing strongly as evidenced by
22.2% growth in capital good imports to that sector. On the
downside, capital good imports for transport equipment dropped for the
third consecutive month, by 15.5%, over January last year, which brought
the overall growth in capital goods imports to a modest 1.3%.
Nevertheless, panellists expect investment to be the main driver behind
the expansion this year.
Strong
investment and a more moderate consumption should prompt economic growth
to remain healthy this year. Furthermore, an improved credit
environment along with better employment conditions should lead to a more
sustained recovery in consumption, which should help drive up GDP growth
in 2002.
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