|
Economy showing signs of slowdown.
According to recent data releases, economic activity is slowing. The
National Statistical Department (DANE) reports that retail sales rose by
3.9% in August over the same month last year, which was up from 2.6% in
July. However, the more recent October retail survey of the National
Retailers Federation (FENALCO) indicates that consumption is
decelerating. Of the total businesses surveyed 40% claimed that real
retail sales rose when compared with the same month last year, down from
42% in the September survey. Lagging demand resulting from high
unemployment and tight consumer credit conditions are the main factors
behind the slump. Business confidence deteriorated much stronger. The
share of businesses that were optimistic about a pickup in consumption in
the next six months dropped from 39% in the September survey to 31% in
October, while the proportion of outright pessimists increased from 7% to
10%, with the balance not expecting any changes from their current
situation.
Consumption growth has remained well below the 2% threshold since December
1999, when the economy began emerging from recession. Panellists do not
anticipate a more pronounced pick up this year. So far, strong investment
growth has been the backbone of the current growth trajectory as
favourable export prospects prompted firms to substantially increase their
investment outlays. However, the prospects for a more pronounced global
slowdown are likely to dampen investment growth, which is expected to slow
this year from 14.9% in 2000.
Lower exports, sluggish demand and declining investment are likely to
moderate growth this year. Participants expect GDP to expand at a rate
below the government’s 2.2% forecast. Nevertheless, growth is expected to
pick up again in 2002, driven principally by improvements in export
performance and continued healthy investment.
Inflation on target.
Consumer prices rose 0.19% in October over September, when prices
increased 0.37%. The October rate was the second lowest this year (+0.11%
in July) and remained well below the average of 0.75% observed in the
first nine months. The low October reading brought the annual inflation
rate to 8.0%, on target with the Central Bank’s 8% objective for this
year. The prospects for meeting the inflationary target set for this year
remain good. So far, inflation has remained well below the quarterly
targets agreed to with the International Monetary Fund (IMF) under the US$
2.7 billion stand-by loan agreement and sluggish domestic demand promises
to keep any inflationary pressures at bay. Consensus Forecast panellists
expect inflation to come in above the government’s target for this year.
Consumer price increases are expected to moderate further next year but
participants expect inflation to rise above the Central Bank goal of 6%
for 2002.
Congress approves 2002 Budget.
On 18 October, the Congress approved next year’s 62.9 trillion Peso budget
(US$ 25.1 billion), which is up from the 54.9 trillion Peso 2001 Budget.
The government expects economic activity to pick up substantially from
this year, despite heightened prospects for a more subdued global
economy. GDP growth is assumed to expand a healthy 3 to 4%, up from the
2.2% projected for this year. Currently, the government is committed to
lower the fiscal deficit target from 2.8% of GDP for 2001 to 1.8% next
year. However, the government may raise the 2001 and 2002 budget deficits
to provide an impulse to the economy, if the IMF approves the requested
1.5 trillion Pesos in additional spending for this year and permits an
upward revision of next year’s fiscal deficit target. The revisions to
this year’s budget would raise the deficit to 3.3% of GDP and is likely to
permit the government to raise the coming year’s target. Officials hope
to use the additional spending to increase outlays for social development
and to implement employment programmes. Consensus Forecast panellists
expect the government to remain on target with the government fiscal
deficit target of 2.8% of GDP set for this year. However, next year the
government is seen to ease fiscal reins.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
|
