Incoming data for Q4 2017 was mixed, but the ongoing economic recovery following last year’s oil price shock likely lost some steam. Industrial output dropped in October, albeit at a considerably more moderate rate. Retail sales swung to contraction, signaling a slowdown in private consumption,
as consumer confidence deteriorated in the month. Export growth slowed again in November, declining at a faster rate than imports. On the flipside,
November saw a slight lift in consumer confidence, which is likely to have fueled higher household consumption in the month. The government reduced its 2017 calendar year budget amid lower-than-expected tax revenues and S&P’s credit rating downgrade on 11 December to meet fiscal targets. Tensions erupted on the political scene after rebels from the
National Liberation Army (ELN) struck the Caño Limón oil pipeline and a naval base in Arauca province on 10 January, shortly after a three-month ceasefire with the government expired. In the wake of the attacks, peace talks that began last year to resolve the more than 53-year long conflict
were stalled. The resurgence of attacks presents a significant setback and could disrupt economic activity if fighting escalates.
• Growth is expected to accelerate this year as exports recover on rising oil prices. Private consumption should also pick up, supported by an anticipated moderation in inflation. Moreover, ongoing structural reforms should aid economic diversification efforts and boost competitiveness.
FocusEconomics panelists expect GDP to grow 2.6% in 2018, which is unchanged from last month’s forecast, and 3.0% in 2019.
• Inflation remained at 4.1% in December. Higher-than-expected inflation in November amid elevated fiscal woes, prompted the Central Bank keep the policy rate unchanged at 4.75% on 14 December. FocusEconomics panelists expect inflation to end 2018 at 3.4% and 2019 at 3.2%.
REAL SECTOR | Industrial production shrinks in October, albeit at a more moderate rate
Industrial production contracted 0.3% year-on-year in October, according to data released by Colombia’s National Administrative Department of Statistics (DANE) on 15 December. This represents a more moderate decrease than the revised 2.0% contraction in September (previously reported: -1.9% yearon- year). Growth in industrial production has been negative for six out of the
unchanged from the revised September figure (previous estimate: -0.1%).
This represents the worst figure in nearly four years. Panelists surveyed for this month’s LatinFocus report expect industrial production to expand 2.1% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, the panel expects industrial production to increase 2.7%.
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%.
OUTLOOK | Consumer confidence remains entrenched in negative territory in November
The Fedesarrollo consumer confidence index recorded a slight improvement in November, rising to minus 10.0 points from minus 10.6 points in October. November’s print was, however, well below the minus 4.6 points recorded in
November 2016. The indicator thus remains below the zero-point threshold that separates consumer pessimism from consumer optimism, where it has been since January 2016.
The slight improvement in consumer sentiment was largely driven by consumers’ less downbeat assessment of economic conditions. Households’ propensity to purchase big-ticket items also improved markedly in the month, and managed to offset consumers’ more negative assessment of the economy in the next 12 months.
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 2.9%.
MONETARY SECTOR | Inflation remains steady in the last month of 2017 According to the National Department of Administrative Statistics (DANE), consumer prices increased 0.38% over the previous month in December, up from the 0.18% month-on-month rise in November. Higher prices for entertainment again led the upturn. All categories recorded price increases, except for the cost of education, which remained steady from the previous, month.
Inflation in December matched November’s 4.1% reading, remaining slightly above the Central Bank’s target of 3.0% plus or minus 1.0%.
In December, core consumer prices, which exclude volatile items including fresh foods and fuels, registered a 0.7% month-on-month rise, up from 0.3% in November. Meanwhile, core inflation increased to 4.9% from 4.7% in November.
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%
MONETARY SECTOR | Central Bank keeps benchmark rate on hold On 14 December, the Board of Directors of Colombia’s Central Bank, BanRep, unanimously decided to keep the benchmark interest rate unchanged at 4.75%, which follows an unexpected rate cut of 25 basis points at its last
meeting on 24 November. The decision was in line with market expectations.
The Bank opted to hold the rate put as inflation came in at 4.1% in November—higher than expected and underpinned by a broad-based increase. It was also above the Bank’s target rate of 3.0% plus or minus 1%. This resulted in limited space to boost weak economic activity through an additional rate cut.
S&P’s decision to downgrade the country’s credit rating from BBB to BBB- on 11 December, over “weaker policy flexibility” amid elevated fiscal woes, also influenced the Bank’s move to keep the rate on hold until the end of 2017.
Inflation is projected to converge to the target range by the end of the year and fall further within the band in 2018 as the impact of supply shocks continue to diminish. Thus, analysts expect more rate cuts to follow in 2018.
Lacking substantial forward guidance, the Bank’s statement suggested that it would adopt a wait and see approach, monitoring domestic and global developments to decide on the next course of action. The date of the next monetary policy meeting has yet to be decided.
LatinFocus Consensus Forecast panelists expect the policy rate to end 2018 at 4.30%, and to end 2019 at 4.70%.
EXTERNAL SECTOR | Export growth slows in November Exports grew 6.7% year-on-year in November, a substantial drop from October’s stellar 15.1% rise. A breakdown of the components released by the National Department of Administrative Statistics (DANE) shows that the fuels
and products of extractive industries, and the manufacturing sector expanded at a double-digit pace. However, output in the farming, food and beverages sector declined, and other sectors contracted severely by 40%, offsetting the gains made.
In October—the most recent month for which data is available—imports expanded 9.1% in annual terms, contrasting a revised 5.7% drop in September (previously reported: -5.6% year-on-year), due to a surge in the imports of combustibles.
The trade deficit was USD 0.6 billion in October —the most recent month for which data is available—down from a USD 0.7 billion shortfall in the same
month of the previous year, but higher than September’s USD 0.3 billion deficit.
Panelists participating in the LatinFocus Consensus Forecast expect that exports will grow 6.9%, which is up 0.1 percentage points from last month’s forecast. Export growth is seen at 6.1% in 2019.
FUENTE: Desde Focus Economics https://www.focus-economics.com/ - Barcelona- España
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