Smooth cycle
A persistently gloomy global context, above-trend growth in 2011 and several domestic factors resulted in a smooth slowdown in Colombia’s economic activity through 2012. Inflation is on target and public finances have continued to post a good performance. Although the current account deficit has risen somewhat, it has remained financed by huge foreign direct investment inflows. We expect a slight rebound in economic growth through 2013 with no alarming macro imbalances. An adverse global scenario will inevitably affect the performance of the Colombian economy.
Decent albeit lower growth
A persistently gloomy global context, an above-trend growth of 5.9% in 2011, monetary policy tightening, delays in public spending as well as protests, strikes and guerrilla attacks on hydrocarbon installations resulted in a slowdown in Colombia’s economic activity through 2012. Real GDP slowed to 4.7% y/y (0.2% q/q sa) in Q1’12 from 6.1% y/y (1.4% q/q sa) in the previous quarter. But economic activity numbers then surprised on the upside in Q2: real GDP expanded by 4.9% y/y (1.6% q/q sa), underpinned by domestic demand and notably the upward correction in public investment.
Despite the slowdown in real wage growth and credit growth and the interruption of the downward trend in the unemployment rate, private consumption rebounded in Q2. On the supply side, this was consistent with the strong rebound in construction, while manufacturing output declined slightly, dragged down by weak external demand and the strong currency. Growth in mining output decelerated from a very high base.
Inflation under control
The primary objective of monetary policy assigned to the central bank is to reach and maintain a low and stable inflation rate and support long-term GDP growth. Since mid-2009, annual inflation has been in line with the central bank's target of 3% (+/-1pp). Against the backdrop of strong domestic demand momentum from mid-2010 to end-2011, the CB’s tightening of monetary policy through consecutive repo rate hikes from Feb’11 to Feb’12 (+225bp to 5.25%) has helped to keep inflation and inflation expectations in check.
Headline inflation peaked at 4.0% y/y in October’11 driven by higher food prices and public service costs, before receding gradually to 2.8% in November’12. Food prices, which account for 28% of the CPI basket, are under control (+3.0% y/y in November’12). On-target inflation, economic growth moderation and global uncertainties led the CB to implement an easing cycle (-75bp in three steps in July, August and November 2012).
By Sylvain BELLEFONTAINE
To Read the Entire Report Please Click on the pdf File Below.
A persistently gloomy global context, above-trend growth in 2011 and several domestic factors resulted in a smooth slowdown in Colombia’s economic activity through 2012. Inflation is on target and public finances have continued to post a good performance. Although the current account deficit has risen somewhat, it has remained financed by huge foreign direct investment inflows. We expect a slight rebound in economic growth through 2013 with no alarming macro imbalances. An adverse global scenario will inevitably affect the performance of the Colombian economy.
Decent albeit lower growth
A persistently gloomy global context, an above-trend growth of 5.9% in 2011, monetary policy tightening, delays in public spending as well as protests, strikes and guerrilla attacks on hydrocarbon installations resulted in a slowdown in Colombia’s economic activity through 2012. Real GDP slowed to 4.7% y/y (0.2% q/q sa) in Q1’12 from 6.1% y/y (1.4% q/q sa) in the previous quarter. But economic activity numbers then surprised on the upside in Q2: real GDP expanded by 4.9% y/y (1.6% q/q sa), underpinned by domestic demand and notably the upward correction in public investment.
Despite the slowdown in real wage growth and credit growth and the interruption of the downward trend in the unemployment rate, private consumption rebounded in Q2. On the supply side, this was consistent with the strong rebound in construction, while manufacturing output declined slightly, dragged down by weak external demand and the strong currency. Growth in mining output decelerated from a very high base.
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Inflation under control
The primary objective of monetary policy assigned to the central bank is to reach and maintain a low and stable inflation rate and support long-term GDP growth. Since mid-2009, annual inflation has been in line with the central bank's target of 3% (+/-1pp). Against the backdrop of strong domestic demand momentum from mid-2010 to end-2011, the CB’s tightening of monetary policy through consecutive repo rate hikes from Feb’11 to Feb’12 (+225bp to 5.25%) has helped to keep inflation and inflation expectations in check.
Headline inflation peaked at 4.0% y/y in October’11 driven by higher food prices and public service costs, before receding gradually to 2.8% in November’12. Food prices, which account for 28% of the CPI basket, are under control (+3.0% y/y in November’12). On-target inflation, economic growth moderation and global uncertainties led the CB to implement an easing cycle (-75bp in three steps in July, August and November 2012).
By Sylvain BELLEFONTAINE
To Read the Entire Report Please Click on the pdf File Below.
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