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Growth lags as a result of sluggish
consumption and subdued global economy
In the third quarter, Gross Domestic Product (GDP) expanded by 1.0% over
the same quarter in 2000. The third quarter reading came in below the
1.6% growth registered in the second quarter and evidences that the
economic deceleration observed in the first half of the year persisted, as
the slowdown in global demand and lagging domestic consumption exerted
strong downside pressure on national accounts.
Consumption leads slowdown
Household consumption accounted for the lion share of the sluggish
performance, exhibiting only meagre 0.55% growth in the third quarter over
the same quarter in 2000, while government consumption was up 2.3%. In
the second quarter household and government consumption had grown at 1.6%
and 0.4% respectively. Investment grew at a healthy 8.4% but the third
quarter growth level was well below the 15.8% expansion experienced in the
second quarter. Similarly, export growth decelerated from 10.6% in the
second quarter to 6.8% in the third quarter, as slumping external demand
and lagging oil production hampered a more favourable development.
Despite clear signs of a slowdown in economic activity, import growth
remained strong with a 13.5% expansion in the third quarter over the same
quarter in 2000.
On a sectoral basis, the manufacturing industry – a key force behind the
economic rebound in 2000 – exhibited the strongest contraction, as output
declined 3.3% in the third quarter over Q3 2000. This represents a marked
slowdown from the 1.3% growth registered in the second quarter. The
downturn reflects slumping demand in key export markets, particularly the
United States. Agricultural activity also contracted but by a far more
modest 0.3%. On the upside, construction activity rose 3.9%, up from a
1.4% contraction in the second quarter. The expansion was driven by a
strong expansion in housing construction, which increased 7.9%. A
persistence of healthy expansions in the construction industry would help
lower unemployment further, which at 16.8% in November remains one of the
highest in Latin America. Finally, mining experienced a strong expansion
(+3.5% year-on-year), despite a 2.5% contraction in oil output, as natural
gas and coal production grew at a healthy 5.0% and 30.1% respectively.
Consensus Forecast participants expect economic activity to accelerate
this year from the anticipated 1.7% in 2001, as increased construction
activity, a continued expansion of non-traditional exports and monetary
easing by the Central Bank provide a strong backbone for healthier
output. However, the slump in global demand, the political election cycle
in the wake of the 10 March congressional and 26 May presidential
elections, heightened guerrilla sabotage and the slide in oil prices
threaten to keep a lid on a more pronounced economic expansion this year.
The current Consensus figure remains well below the government’s more
optimistic 3.0% growth estimate and highlights panellists’ concerns that
the negative risk factors will weigh heavily on the economic growth story
this year.
Inflation reaches historical low
amidst sluggish demand and Central Bank discipline
Consumer prices rose 0.34% in December well below the Consensus figure of
0.48% anticipated in last month’s forecast. The December price increase
remained moderate despite of seasonal pressures related to holiday
spending and brought down the annual inflation rate from 7.8% in November
to 7.7%, which was below the Central Bank target of 8%. For all of last
year, monetary authorities kept to quarterly inflation targets set with
the International Monetary Fund (IMF). In addition, the 2001 inflation
figure was the lowest observed since 1970 and reflected favourably on the
Central Bank’s efforts to maintain monetary policy discipline even though
it meant keeping higher interest rates and compromising economic growth.
Interest rates as measured by the benchmark DTF rate remained stable
throughout the first half of the year but gradually came down as
significant price pressures stayed absent amidst more sluggish domestic
economic activity and increased currency stability. This year, inflation
is expected to drop further, as the currency depreciation is expected to
accelerate from just 2.7% in 2001 this year and economic activity will
raise price pressures. The Central Bank is likely to counter any rising
inflationary pressures through monetary tightening. The benchmark DTF,
which has remained below 12.0% for the past months, is expected to rise
steadily throughout this year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
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