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Investment bolsters economic
activity in the second quarter
In September, the National Statistical Department (DANE) released
aggregate demand and supply data and revised the annual growth rate for
gross domestic product (GDP) in the second quarter upward from the 2.0%
reported earlier to 2.2%. The second quarter reading represents a slowdown
compared to the 4.3% growth observed in the first quarter. Even though
investment remained robust, the pace slowed compared to the first quarter
and was in line with the deceleration observed in consumption and the
external sector.
The low interest rate setting along with an improved credit environment
accounted for the continued strength in investment growth, which rose
10.2% over the same quarter last year. However, investment activities
decelerated notably from the strong 48.6% expansion registered in the
first quarter. The slowdown was particularly pronounced in transport
equipment output (Q2: -5.1% year-on-year, Q1: 64.7% yoy) as well as civil
works projects activities (Q2: -10.1% yoy, Q1: 24.7% yoy).
Similarly, consumption slowed from 1.2% growth in the first quarter to a
0.9% expansion in the second quarter. Private consumption decelerated from
1.2% in the first quarter to 0.7% in the second quarter, as benefits of
lower interest rates were offset by high unemployment and the continued
tight credit environment faced by consumers. A pronounced deceleration in
growth of semi-durable consumer goods purchases was the key downward
driver behind the second quarter private consumption deterioration, as
growth slowed from 8.5% in the first quarter to 1.4%. Public consumption
rose moderately from a 1.2% expansion in the first quarter to 1.5%, as the
government stepped up military spending.
External sector overshadowed by
subdued outlook in key export destinations
According to national accounts data, export growth expanded 0.3% in the
second quarter over the same quarter last year. The second quarter figure
represented an improvement over the 0.8% decline observed in the first
quarter and was the first quarterly improvement since the third quarter of
2001. However, the subdued performance in the external sector illustrates
that Colombian exporters continue to suffer the consequences of the
economic downturns in key export destinations, particularly the United
States and Venezuela. Imports experienced a strong slowdown with growth
reaching just 1.4% in the second quarter, following the 16.7% expansion in
the prior quarter.
The dismal economic setting in neighbouring Venezuela will continue to
dampen the export sector. However, if inflation remains on a downward
trajectory, monetary authorities should be encouraged to keep interest
rates at their current lows. The Central Bank’s lax monetary policy would
bolster private consumption and thus support domestic demand, as
investment growth will continue to slow from the current unsustainable
growth trajectory. In fact, Consensus Forecast participants expect
economic activity to remain healthy throughout the year with GDP expected
to grow 2.7%, which is well above the government’s 2.0% estimate and a 0.1
percentage point above last month’s figure. An improved export environment
next year should help to further bolster economic activity, which is seen
by panellist as accelerating to 3.3%.
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