The economy lost traction for the fourth consecutive year in 2017, expanding at the weakest pace in eight years. Annual GDP growth lost momentum in the final quarter after picking up in the previous three quarters. Private consumption growth fell sharply from Q3 and was the
primary factor behind the slower economic expansion in Q4. Higher inflation, along with sluggish growth in private credit, discouraged household spending. Prospects furthermore look fairly dim at the outset of 2018. While consumer confidence rose to the highest level in just over a year in January, it remained in pessimistic territory, and unemployment reached a two-year high in the month. In the legislative elections held on 11 March, voters turned to right-wing parties critical of the peace deal
brokered with FARC rebels. Ex-President Álvaro Uribe’s conservative Democratic Party won the most seats in parliament. Meanwhile, FARC— the former guerilla movement turned political party—failed to garner support for its radical agenda and will only hold the 10 seats guaranteed
under the 2016 peace agreement.
• The economic recovery should pick up pace this year as domestic demand improves. An upturn in private consumption growth is expected against an anticipated decline in inflation. Growth in fixed investment should also accelerate amid more favorable financing conditions. Diversifying
the economic structure and boosting productivity in the lackluster nonoil sector will, however, be crucial to achieving sustainable growth. FocusEconomics panelists expect GDP growth of 2.6% in 2018, which is unchanged from last month’s forecast, and 3.0% in 2019.
• Inflation edged down to 3.4% in February from 3.7% in January. FocusEconomics panelists expect inflation to end 2018 at 3.4% and 2019 at 3.2%. REAL SECTOR | Economy loses steam in Q4, with a slower overall pace of expansion in 2017
The economy lost ground in 2017, as full-year economic growth fell short of the level reached in the preceding year, edging down to 1.8% from 2.0% in 2016. The result slightly undershot market expectations of an expansion of 1.9%. In the fourth quarter, annual GDP growth slowed to 1.6%, down from a revised 2.3% in the third quarter (previously reported: +2.0% year-on-year).
A loss of momentum on the domestic side of the economy and in the external sector, fueled the downturn. Economic growth in seasonally-adjusted, quarteron- quarter terms fell to 0.3% in Q4, markedly down from 0.8% in Q3. Domestic demand expanded at a weaker pace of 1.3% year-on-year in Q4 compared to 2.1% in Q3. The moderation was spearheaded by a sharp slowdown in the annual growth of private consumption, from 2.5% in Q3 to 0.9% in Q4. This can in part be explained by a pick-up in inflation during the quarter compared to Q3, which ate into consumers’ purchasing power
and spurred a reduction in household spending. Meanwhile, government consumption grew at a solid but marginally more moderate pace (Q4: +4.2% yoy; Q3: +4.4% yoy). By contrast, year-on-year growth in fixed investment was stable at 0.3%.
In the external sector, exports contracted 3.8% year-on-year in the final quarter, following a 5.0% rise in the previous quarter. The drop was mainly due to reduced sales of basic metallurgic products, mineral coal and threshed coffee. Imports also contracted in the quarter, shrinking 4.0% in annual terms (Q3: +1.9% yoy). Due to the slightly sharper decline in imports, the external
sector still contributed positively to economic growth, but the magnitude of the contribution was smaller than in the previous quarter.
Panelists participating in the LatinFocus Consensus Forecast project that GDP will expand 2.6% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect GDP to grow 3.0%.
REAL SECTOR | Industrial production contracts in December Industrial production contracted 0.8% over the same month of 2016 in December, according to data released by Colombia’s National Administrative Department of Statistics (DANE) on 14 February. The result contrasted a 0.2% year-on-year rise in November.
Looking at a weighted-breakdown of the sub-components, there was a contraction in 26 out of the total 39 industrial activities, which more than offset an expansion in the remaining sectors. The downturn was primarily brought about by a marked decline in manufacturing of non-metallic mineral products, production of plastic products, and preparation of beverages. Although, the
deterioration was curbed somewhat by a solid increase in coking, oil refining, and fuel blending, whose contribution to the overall print has the heaviest weight. Double-digit expansions in basic industries of iron and steel, and preparation of sugar and panela also helped to limit the decline.
Annual average industrial production growth declined to minus 0.6% in December, down from a revised minus 0.3% in November (previously reported: -0.4%). This marks the lowest result since January 2014. Panelists surveyed for this month’s LatinFocus report expect industrial
production to expand 2.1% in 2018, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel expects industrial production to increase 2.6%.
OUTLOOK | Consumer confidence improves in January but is still seated in pessimistic territory
The Fedesarrollo consumer confidence index climbed to minus 5.4 points in January, up from minus 6.0 points in December, which marks the best result since November 2016. That said, the indicator remains above the zero-point threshold that separates optimism among consumers from pessimism, where it has been for two years.
January’s improved print was driven by consumers’ more favorable perceptions regarding their personal economic situation and general economic conditions in the next 12 months, along with a higher propensity to purchase big-ticket items. The upturn in these components made up for less favorable perceptions about the remaining sub-components of the index. Consumer sentiment on
their current personal financial situation compared to a year ago reverted into negative territory, after entering optimistic terrain for the first time in two years. In addition, consumers’ perceptions regarding their future personal economic situation also worsened.
LatinFocus Consensus Forecast participants expect private consumption to expand 2.6% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects private consumption to increase 3.0%.
MONETARY SECTOR | Inflation edges down in February but remains within the Central Bank’s target range According to the National Department of Administrative Statistics (DANE), consumer prices increased 0.71% over the previous month in February following a 0.63% month-on-month rise in prices in January. There was a broad-based increase, with higher prices for all but one of the eight subcomponents. Education, which is weighted the heaviest in its contribution to the movement in overall prices, saw the biggest jump in prices. Meanwhile, entertainment was the only subcategory in which prices declined.
Inflation fell to 3.4% in February from 3.7% in January. It remains within the Central Bank’s target range of 3.0% plus or minus 1.0%, after entering the band last month for the first time since September 2017. In January—the latest month for which data is available—core consumer
prices, which exclude volatile items including fresh foods and fuels, increased 0.7% over the previous month, matching December’s reading. On the other hand, core inflation edged down to 4.3% in February from 4.7% in January. Panelists participating in the LatinFocus Consensus Forecast expect that inflation will end 2018 at 3.4%, which is unchanged from last month’s forecast.
For 2019, the panel expects inflation to end the year at 3.2%. EXTERNAL SECTOR | Exports continue to soar in January According to the National Department of Administrative Statistics (DANE), exports continued soaring at a double-digit pace in January, expanding for the
fifteenth consecutive month. Exports grew 14.6% year-on-year in the month, beating December’s 13.6% jump.
The headline figure reflected an increase in the exports of the three major product groups. In annual terms, overseas sales of farming, food and beverages climbed 27.0%. Manufacturing exports followed closely behind, jumping 22.4%, while exports of fuels and products of extractive industries
rose 13.2%. Higher exports of these products countered a contraction in overall exports in other sectors. In December—the most recent month for which data is available—imports
contracted 10.0% year-on-year, a sharper decline than November’s 4.3% yoy drop. The decline was largely due to a sharp drop in fuel imports, which fell 25.2% in annual terms, along with a double-digit contraction in the imports of other sectors.
The trade balance swung to a USD 485.4 million surplus in December, from a USD 384.2 million deficit in the same month of the previous year, and a USD 761.7 million shortfall in November of the same year. Panelists participating in the LatinFocus Consensus Forecast expect that
exports will grow 8.6%, reaching USD 41.1 billion in 2018. Exports are seen rising 5.1% to USD 43.1 billion in 2019.
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