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Investment
to moderate from unsustainable levels
Trade data suggest that investment remained buoyant in the final
quarter of the year, as capital goods imports rose 10.8% in October.
However, activity may be slowing, as the October growth figure was
well below the 25.9% yoy expansion observed in September.
Investment continued robust in the agricultural and construction
sector, where capital goods imports rose 103.8% and 57.4% respectively.
Consensus
Forecast participants expect the pickup in the second half of the year to
have lifted economic growth in 2003 to 3.0%, which is up from 2.9% in last
month’s publication.
Economic activity is anticipated to continue picking up this year,
as a healthy rebound in domestic demand offsets more moderate export
growth.
As a result, panellists see GDP expanding 3.3%, which is down 0.1
percentage point from last month’s Consensus estimate.
Inflation
accelerates at end of year
Consumer prices rose 0.61% in December, which was up from the 0.35%
pace observed in the prior month and well above expectations.
The strongest monthly increases were registered in food and
transportation prices.
As a result of the December reading, the annual inflation rate rose
to 6.5% from 6.1% in November.
Thus, the annual inflation rate for last year exceeded the Central
Bank’s central target inflation rate of 5.0% but remained within the +/-
2 percentage point target band.
The pick up in consumption and more accelerated currency
depreciation are not expected to prompt excessive inflationary pressures
in 2004.
Participants see annual inflation dropping to 5.7% by the end of
this year (0.1 percentage point below last month’s estimate), which is
within the Central Bank’s 5% to 6% target range.
In 2005, authorities see inflation decelerating again to a 3.5% to
5.5% range, which is below the 5.4% Consensus estimate.
Monetary
reins remain loose as Central Bank spurs on economy
Despite the currency-induced inflationary bout at the beginning of
last year, an annual inflation rate that remained persistently above the
target throughout 2003 and accelerating economic activity, the Central
Bank maintained monetary reins loose.
In fact, the benchmark 90-day DTF interest rate rose only a
moderate 22 basis points compared to the end of 2002 and remained at
historical lows throughout the year.
Participants anticipate that the Central Bank is likely to tighten
monetary policy this year amid heightened economic activity and
accelerated currency depreciation.
As a result, the DTF rate is seen rising to 8.5% by year-end.
Current
account deficit widens in third quarter
The current account balance registered a deficit of US$ 370 million in
the third quarter of last year, which represented a widening from the US$
88 million deficit observed in the prior quarter but was virtually in line
with the US$ 362 million deficit of the third quarter 2002.
The deterioration in the trade balance, which reverted from a US$
135 million surplus in the second to a US$ 18 million deficit in the third,
accounted for the widening in the current account deficit.
A notable deceleration in export growth and a strong recovery in
imports provided the backdrop for the emergence of a trade deficit in the
third quarter.
Nevertheless, a US$ 514 million surplus in the capital account was
more than sufficient to finance the current account shortfall as long-term
financial flows - principally foreign direct investment in Colombia - rose
from US$ 140 million in the second to US$ 672 million in the third quarter.
Despite
the third quarter current account deficit, the annual current account
shortfall remained virtually unchanged at US$ 1.6 billion.
Participants expect the current account deficit to have widened
further to US$ 1.8 billion through the end of last year, amid strong
import growth and a moderating export expansion.
This year the current account deficit is seen as widening further
as strong domestic demand is likely to push up import growth notably.
As a result, the current account deficit is seen as reaching US$
2.0 billion by year-end.
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