Andean Group - December 2005 (ISSN 1741-4466)

The central bank increased its forecast for growth in 2005 on 11 November to between 4.5% and 4.7%. Previously the bank had been forecasting growth of just 4%. The bank said that it was raising its forecast because of the decent state of the world economy and the positive outlook domestically. The bank is particularly pleased that inflation fell back again, and came back into the target zone, after surging slightly in September. The October inflation rate was almost half the September rate.

The main positive external factor is the sustained growth in Venezuela. This growth helps Colombia's manufactured exports. The recovery in coffee prices and the surge in oil prices has also helped Colombia's commodity exports. So far, non-traditional exports do not appear to have been priced out of export markets by the strong appreciation of the peso this year.

Investment is also picking up. The central bank reckons that this year it is running at 22% of GDP. If this rate is achieved it will be the highest since 1995, the average rate of investment is around 18% of GDP.

Inflation: Inflation in October was 0.23%. This brought the rate for the past 12 months to 5.27%. The government set an inflation target of between 4.5% and 5.5% for 2005. In 2004 inflation was 6.5%.

Oil windfall: The state oil company, Ecopetrol, believes that its oil revenues will be 50% (or US$1.45bn) higher than it budgeted. The government will swipe the bulk of this windfall to cover its deficit.