Data for the first quarter indicates that growth gained traction on the back of a rise in oil prices, signaling that the economic recovery is underway. Retail sales rebounded in January and accelerated throughout the quarter amid declining inflation and improved consumer confidence. While still in
negative territory, consumer sentiment was less pessimistic on average in the quarter compared to the previous one, which likely helped buoy private consumption. Exports continued expanding at a strong pace, although they lost some ground from the final quarter. Colombia will
hold the first round of its presidential election on 27 May. Centre-right candidate Iván Duque, from ex-President Álvaro Uribe’s Democratic Center (Centro Democrático), continues to lead in the latest polls and is the favorite to win.
• The economy is expected to accelerate this year as oil prices climb higher. An expansion in oil exploration activities should help boost growth in the medium term. Dependence on oil exports will, however, leave the economy exposed to the same type of external shock that generated
a slowdown in 2015–2016. Investment in the non-oil sector will thus be critical to achieving sustainable growth. FocusEconomics panelists expect GDP growth of 2.5% in 2018, which is unchanged from last month’s forecast, and 3.0% in 2019.
• Inflation in April matched March’s 3.1% print. At its 27 April monetary policy meeting, the Central Bank cut the benchmark interest rate by 25 basis points to 4.25%. FocusEconomics panelists expect inflation to end 2018 at 3.3% and 2019 at 3.2%.
POLITICS | Colombia gears up for presidential election, with center-right candidate the favorite to win Colombia is set to hold the first round of its important presidential election on 27 May. In the likely event that no candidate garners more than 50% of the vote, the race will move to a second round on 17 June. According to the latest polls, centre-right candidate Iván Duque of the Democratic Center (Centro Democratico) is maintaining a lead over left-wing candidate Gustavo Petro,
a former guerrilla. Although the two candidates are expected to face off in a second round run-off, the likeliest outcome is a victory for Duque, whose business-friendly stance is conducive to higher growth. A win for Petro could generate more economic uncertainty due to his plans to raise taxes and shift away from oil towards agriculture. A frail economy and a string of corruption scandals have swayed voters to the opposite ends of the political spectrum, away from the ruling centre-left Social Party of National Unity (Partido Social de Unidad Nacional). Reflecting the dominant view held among market analysts, Quinn Markwith, Emerging Markets Economist at Capital Economics, commented that, “The election certainly looks like Duque’s to lose. In terms of his policies, lower taxes (including corporate taxes) on his watch would help to boost investment and consumer spending.” The economy has been severely beset by the sharp oil price slump of 2014–2015 and a program of austerity imposed by the ruling party. Andrés Langebaek Rueda, Chief Economist at Grupo Bolívar, shares a similar view: “As a pro-business candidate, he [Duque] should generate
greater investor confidence, which would result in greater growth”. However, Duque’s opposition to the 2016 peace accord with FARC rebels could “generate a resurgence of violence and insecurity in the country, which in turn would generate fears among investors”. Nevertheless, Rueda expects that
“most of the agreements will remain in force”. While Duque and Petro both favor slowing the pace of trade liberalization and are united against signing more free trade agreements, which have failed to
yield the intended benefits, Petro’s overall economic agenda stands in stark contrast to Duque’s. Petro’s proposed program focuses on diversifying the economic structure away from extractive industries and the renegotiation of free trade agreements; implementing a tax overhaul, including a measure to tax owners of unproductive fertile land; and launching policies aimed at reducing the widening gap between rich and poor. Quinn Markwith of Capital Economics sees a Petro presidency being “characterised by a shift towards looser fiscal policy, state intervention and a more fragile balance of payments”; this outcome could steer the economy off onto an unsustainable path. He
states that “the ‘anyone but Petro’ vote should be strong enough to ensure Duque beats him to the presidency”. After the economy expanded at the slowest pace in eight years in 2017, available data for the first quarter of the year is showing signs of a turnaround.
This includes a surge in retail sales amid declining inflation, which has bolstered consumers’ real purchasing power. Economic growth is expected to pick up as political uncertainties fade and oil prices continue to climb. Along with the recent increase in oil prices that has significantly improved the country’s outlook, Quinn Markwith of Capital Economics expects that the recovery over
the coming years will be supported by “lower inflation and recent interest rate cuts [which] should bolster domestic demand too”. Whoever emerges at the helm of power will be tasked with a serious challenge to revive the economy’s lost shine and break from its high dependence on oil. The Central Bank foresees the economy growing 2.7% this year. Panelists participating in the LatinFocus Consensus Forecast project that GDP will expand 2.5% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect GDP to grow 3.0%.
REAL SECTOR | Industrial production swings to contraction in March According to data released by Colombia’s National Administrative Department (DANE) on 11 May, industrial output contracted 1.4% over the same month of the previous year in March, contrasting a 1.5% year-on-year expansion in February.
Looking at a breakdown of the data, 26 out of the 39 industrial activities recorded a decline, while the remaining 13 registered an expansion. Among the notable drivers of the downturn were the categories of manufacture of non-metallic mineral products; manufacture of pharmaceutical products,
medicinal chemicals; and manufacture of soaps and detergents, perfumes and toilet preparations. Industrial activities that showed a pick-up included the preparation of sugar and panela; preparation of beverages; and coking, oil refining, and fuel blending. Annual average growth in industrial production dropped down to minus 0.7% in March from minus 0.2% in February.
Panelists surveyed for this month’s LatinFocus report expect industrial production to expand 2.2% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects industrial production to increase 2.5%. OUTLOOK | Consumer sentiment more upbeat in March
The Fedesarrollo consumer confidence index climbed to a 17-month high of minus 3.2 points in March, up from minus 7.8 points in February. The indicator has now been sitting below the zero-point threshold that separates optimism from pessimism among consumers for 27 months.
The improvement in consumer sentiment reflected an upturn in all five subcomponents of the index. Consumers’ perception on their future personal economic situation was more optimistic and sat in positive territory, while their views on the general economic situation and the economic conditions
of the country over the next 12 months were less pessimistic but remained in negative territory. Moreover, consumers held a more favorable view on their personal economic situation now compared to a year ago and showed a higher propensity to purchase big-ticket items, but both components remained below the zero-point threshold.
LatinFocus Consensus Forecast participants expect private consumption to expand 2.5% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects private consumption to increase 3.0%.
MONETARY SECTOR | Inflation remains at a two-and-a-half-year low in April According to the National Department of Administrative Statistics (DANE), consumer prices increased 0.46% over the previous month in April following a 0.24% month-on-month rise in March. Five out of the nine sub-components recorded higher prices from the previous month, three came in flat, and one
registered a fall in prices. Prices for housing increased the most, while prices for entertainment declined. Inflation remained at March’s 3.1% in April—the lowest rate since September
2014. It thus remained within the Central Bank’s target band of 3.0% plus or minus 1.0%.
In April, core consumer prices prices—which exclude volatile items including fresh food and fruit—came in flat in April following a 0.3% rise over the previous month in March. Meanwhile, core inflation dropped to an over three-year low of 3.8% in April after coming in at 4.0% in March.
Panelists participating in the LatinFocus Consensus Forecast expect that inflation will end 2018 at 3.3%, which is unchanged from last month’s forecast. The panel expects inflation to end 2019 at 3.2%.
MONETARY SECTOR | Central Bank cuts interest rate in April At its 27 April Board of Directors meeting, Colombia’s Central Bank (Banco de la República, BanRep) unanimously voted to cut the benchmark interest rate 25 basis points from 4.50% to 4.25%—a move that was in line with analysts’
expectations. The benchmark interest rate is now at the lowest level since July 2014. The move was aimed at bolstering the economic recovery against a backdrop of slowing inflation. Incoming data for the first quarter suggests a tepid acceleration in growth following last year’s lacklustre performance. BanRep forecasts that GDP will grow 2.7% this year, supported by healthier external
demand, stronger infrastructure investment and accommodative monetary conditions. The projection would be a marked improvement from 2017’s performance, but well below potential growth.
Improved inflation dynamics gave the Bank room to manoeuvre in April after it had decided to stand pat in March over concerns of inflation falling too quickly.
Headline inflation decreased to 3.1% in March, marginally above the midpoint of the Central Bank’s 2.0%–4.0% target range. The slowdown in inflation in Q1 was largely due to the fading of one-off price shocks in 2017. That said, BanRep noted growing upside risks to inflation, including a stronger-thanexpected depreciation of the peso and higher food prices in the second half
of the year, which could delay inflation’s trajectory towards the 3.0% target.
The communiqué provided little forward guidance beyond the statement that the Bank will continue to monitor price behaviours and economic activity as well as global developments and readjust any forecasts if need be. The next monetary policy meeting will be held on 31 May.
LatinFocus Consensus Forecast panelists expect the policy rate to end 2018 at 4.21% and end 2019 at 4.72%.
EXTERNAL SECTOR | Export growth tumbles in March According to the National Department of Administrative Statistics (DANE), the annual pace of expansion in exports deteriorated to 1.4% in March from 10.3% in February. Two of the major export groups registered faster growth,
with exports of fuels and products of extractive industries growing at a doubledigit rate of 13.1%, and exports of manufacturing output expanding at a solid stride of 5.5%. On the other hand, exports of farming, food and beverages contracted 19.3%, while exports in other sectors contracted by almost a third. In February—the most recent month for which data is available—imports grew 0.1% year-on-year, a much smaller increase than the 10.2% annual expansion in January. There was a decline in two of the three main import groups, including fuels and farming, whereas imports of manufactured goods rose at a solid pace.
In annual terms, the trade deficit shrank to USD 548.4 million in February from USD 761.9 million from the same month of the previous year. A USD 389.9 million deficit was recorded in January.
Panelists participating in the LatinFocus Consensus Forecast expect that exports will grow 10.8%, reaching USD 41.8 billion in 2018. Exports are seen rising 5.2% to USD 44.0 billion in 2019.
Por Focus Economics - https://www.focus-economics.com/ - Desde Barcelona España