Colombia - Economic Briefing June 2004

Economic Growth Moderates but Remains Healthy

The buoyant economic growth rates of last year appear to have drawn to an end but activity continues to grow at a healthy pace.  The stable exchange rate, low interest rates and easing credit are key factors behind the rebound in domestic demand, while the export sector is benefiting from recovery in key export markets, particularly the United States and Venezuela.  However, growth rates are moderating since the higher comparison base of last year is beginning to kick in.

Growth moderates but robust in first quarter
On 2 June, the National Statistical Department (DANE) released first quarter gross domestic product (GDP) data, which show that economic activity expanded 3.8% over the same quarter last year.  The actual reading was well below the government’s 4.2% estimate released in April but was above the 3.2% expected by participants in last month’s LatinFocus Consensus Forecast..  The first quarter figure represented a deceleration compared to the 4.5% growth registered in the final quarter of last year

Construction boom propels economic activity
All sectors experienced positive growth in the first quarter.  Construction, particularly of new housing projects, was the strongest growing sector in the first quarter, as activity rose 12.1% over the same quarter last year (Q4 2003: +14.5% year-on-year).  Financial services as well as transportation and communications also registered very strong growth rates of 7.5% (Q4 03: +2.9% yoy) and 6.3% (Q4 03: +5.5% yoy) respectively over the same quarter last year.  Agriculture and public services experienced the most moderate growth rates with expansions of 1.8% (Q4 03: +3.1% yoy) and 1.4% (Q4 03: +3.5% yoy) respectively.

Private consumption bolstered by stronger currency and low interest rates
Aggregate demand and supply figures are scheduled for release later this month.  However, recent data published by DANE indicate that domestic demand remained healthy in the first quarter.  Private consumption, as indicated by national retail sales, experienced strong growth.  Real national retail sales were up 5.0% in March over the same month last year, which represented a decline from the more robust 8.9% and 7.1% growth rates observed in the January and February respectively.  In March, activity in the retail sector was bolstered by strong motorcycle, automotive vehicle and household appliance sales.  As a result of the robust monthly results, growth in the first quarter is likely to have reached 6.9% over the same quarter last year, which was up from a 4.0% expansion experienced in the final quarter of 2003.    Higher real incomes, as a result of the recent currency appreciation, as well as low interest rates bolstered consumption activity in the first quarter of the year.

Investment remained strong but moderated
The robust investment activity observed in the final quarter of last year, when growth reached 13.7% over the same quarter the prior year, is unlikely to have been repeated in the first quarter.  Nevertheless, growth of capital goods imports actually picked up in March to a 14.8% pace compared to the same month last year, up from 8.0% in February.  Capital goods were boosted by strong demand in the construction sector, where imports of construction materials more than doubled (March: +105.5% yoy February: +36.1% yoy).  Similarly, demand for capital goods in the agricultural sector remained strong, as year-on-year growth dropped only moderately in March to 24.5% from 27.6% in February.  The strong investment growth continues to reflect recovery in the global economy but also increasingly reveals a much healthier level of domestic demand.

Outlook unchanged as exuberant growth rates unsustainable
Consensus Forecast participants expect the current pace of economic activity to persist throughout the year, as prospects for continued healthy global growth should provide a solid backdrop for continued expansion.  GDP is anticipated to grow 3.8% this year, which is unchanged from last month’s forecast and remains a notch below the government’s more upbeat 4.0% growth projection and the even more optimistic Central Bank’s estimate of 4.5%.  Economic activity is expected to be equally robust next year, as growth is likely to decelerate only moderately to 3.6%.