Lingering
signs of a slowdown in economic activity were confirmed in first quarter
GDP data, which came in well below market expectations. The
export-led growth recovery is threatened by guerrilla attacks against the
country’s oil infrastructure and the downturn in global demand, while
consumption remains subdued due to high unemployment and tight credit
conditions.
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First
quarter growth disappoints.
On 23 May, the National Statistical Department (DANE) reported that Gross
Domestic Product (GDP) expanded a meagre 1.75% in the first quarter over
the same quarter last year. The first quarter figure was almost 1
percentage point below the National Planning Department’s 2.7% growth
estimate released in April. The sectoral breakdown indicates that
the contractions in mining and oil output (-5.5%) and construction
activity (-3.4%) were the key cause of the slowdown in the first quarter.
Within mining, oil production dropped 14.6% over the same quarter last
year owing to increased guerrilla attacks on the oil infrastructure.
On the upside agriculture grew 5.0%, followed by commerce, retail and
hotel services (+2.9%), transport and communications (2.8%), manufacturing
(2.2%) and finance and insurance (1.0%).
Consumption
improvement offset by high unemployment.
DANE has not yet released aggregate demand and supply data but recent
economic indicators point towards a slowdown in consumption. Even
though unemployment has dropped from 19.7% in December to 17.8% in April,
it remains high and, combined with tight credit conditions, continues to
stifle a more pronounced recovery in consumption. Real retail sales
rose just 1.0% in March over the same month last year, compared to 0.4% in
February (March: 1.9% vs. February: 1.0% excluding fuel and automobile
sales). March automobile and motorcycle sales experienced the
strongest contraction, dropping 13.2% but personal care products also
dropped 3.4%. On the upside, furniture and office equipment sales
rose 25.2% in March over the same month last year. This month’s
Consensus Forecast indicates that consumption is likely to remain subdued
this year as unemployment eases up again to 19.1% by year-end. As a
result, consumption is expected to increase at a very moderate uptick from
the 1.5% expansion registered last year.
Investment
moderating.
Strong
investment growth of 12.3% last year (particularly in the export-oriented
industries) served as the key driver behind the economic rebound.
However, the investment expansion is likely to moderate as a result of a
less favourable global economic outlook, particularly in the United
States. Colombian exports to the United States accounted for 49.8%
of total exports and foreign investment from North America accounted for
44.3% of total investment in Colombia last year. According to March
trade data, exports to the United States declined 14.0% in the first
quarter compared to the same quarter last year. Investment from
domestic firms could also be scaled back if any accelerated weakening of
the exchange rate forces firms with dollar-denominated debt to adjust to
higher debt servicing costs in Peso terms (currently 39.1% of external
debt is owed by the private sector). The Peso has lost 4.1% to the
US$ since December last year and is expected by panellists to weaken
further this year, well above the National Planning Department’s
estimate of 6.8%. Despite the worsening of global economic
conditions and the weakening of the exchange rate, panellists still expect
investment growth to remain healthy.
Growth
forecasts revised.
Given the meek first quarter growth performance, the government is
planning to accelerate the implementation of a US$ 650 million public
investment project.
The Pastrana administration has announced that it will decide in
the next few months whether to revise this year’s growth target of 3.8%
underlying the IMF US$ 2.7 billion stand-by agreement of December 1999.
Officials claim that compliance with this year’s growth target
would necessitate growth rates in excess of 3% in the remaining three
quarters of this year.
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