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The robust growth momentum observed in the second half
of last year appears to have carried over to this year, as low interest
rates, a stronger currency and easing credit conditions are spurring on
domestic demand. Meanwhile, the
external sector is benefiting from stronger global demand and higher
commodity prices. However, the
government’s efforts to pass a constitutional reform to allow for
presidential re-election is likely to stall progress on economic policy
reforms considered essential to sustain healthy economic growth rates. |
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Growth
remains robust in first half amid exports surge and healthy domestic
demand
On 20 April, the government planning department announced that gross
the domestic product (GDP) is likely to have grown 4.2% in the first
quarter over the same quarter last year.
The government figure was a notch below the robust 4.5% estimate
released by the Central Bank earlier.
Thus, economic activity remained very robust, moderating only
slightly from the 4.4% growth pace observed in the final quarter of last
year.
Even though the preliminary data is likely to undergo some revision
before the release of the official figure at the end this month, recent
indicators confirm that first quarter growth remained strong.
Private
consumption strong amid low interest rate setting
According
to the National Statistical Department (DANE),
real national retail sales rose 7.1% in February over the same month last
year.
The February figure was below the 8.9% growth experience in January
but confirmed that private consumption is likely to have been strong in
the first quarter.
Healthy growth in household appliances and furniture (+21.8%
year-on-year), vehicle parts and accessories (+20.4 yoy) and hardware
goods (+18.3% yoy) drove the overall pace of real retail sales in February.
The only retail sectors to experience contractions over the prior
year were books/publishing (-8.7% yoy), automotive vehicle lubricants
(-5.4% yoy) and office furniture/equipment (-0.2% yoy).
The retail sector continues to benefit from the current low
interest rate environment, easing credit conditions and the real income
boost associated with the strong currency appreciation.
Industry
on robust expansion path amid export drive and rising domestic demand
Similarly,
industrial output is proceeding along a robust growth trajectory.
In February, industrial production was up 6.1% over the same month
last year.
The February figure contrasted with the 0.3% contraction observed
in January and resumed the trend of strong output growth observed since
September of last year.
The strongest growth within the industrial sub-sectors was
registered in construction inputs, household appliances and basic metals,
while clothing and general machinery output dropped.
Industry continues to benefit from the low interest rate setting
and a revival in domestic demand, which is serving to augment the already
healthy boost received from the improved export setting.
The
most recent trade data indicate that exports continued along a strong
expansion path with total sales rising 28.1% in January over the same
month last year, compared to a 1.2% decline in imports.
The January export figure represented a strong acceleration
compared to the prior month, when exports had grown 5.8%.
Traditional exports accounted for the lion share of the January
export expansion, as coal and coffee exports received a strong boost from
increased global demand.
Total traditional exports expanded 32.2% in January over the same
period last year, which was well ahead of the healthy 21.3% growth in
non-traditional exports.
Government
raises economic outlook
In light of the strong first quarter economic performance, the
government decided to revise this year’s growth estimate upward from
3.8% to 4.0% in April.
Officials believe that improved investor sentiment towards the
country will boost private investment further, particularly in industry,
mining and agriculture.
The new government estimate is now 0.2 percentage points above the
Consensus Forecast estimate but remains below the Central Bank’s
optimistic 4.5% growth scenario for this year.
Next year, the Consensus Forecast sees growth as decelerating only
moderately to reach 3.6%.
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