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Colombian industry begins to recover as economy reopens

Primeros datos de la reactivación de la industria en Colombia

The Colombian manufacturing sector took its first step to recovery in June, as latest survey data signaled renewed increases in output and new work amid government efforts to restart economic activity. The strong expansions were the first seen in four months, driving an uplift in purchasing activity and leading employment to approach stabilization.

The seasonally adjusted Davivienda Colombia Manufacturing PMITM rose by over 17 points to 54.7 in June, to signal a marked improvement in business conditions at goods producers. The reading was the highest seen since May 2011 and contrasted with the two lowest readings in the series of 27.6 in April and 37.2 in May.

Although it is a long way to know the sustainability of this recovery, since it all depends on the spread of the virus being controlled and on hospital capacity improvements in the coming weeks, it is a first step in the right direction.

Andrés Langebaek, Chief Economist Bolivar Group at Davivienda

Upturns in both output and new orders were observed across the manufacturing sector during June, as businesses were largely able to restart operations following closures caused by the COVID-19 pandemic. Production rose for the first time since February, and sharply overall, with firms also seeing a strong improvement in new work that was the sharpest recorded for 22 months.

That said, this represented only a part reversal of the COVID-19-induced downturn. On the negative side, some businesses struggled to boost output due to weak capacity and the inability to source raw materials, which partly led to higher backlogs of work. Employment meanwhile fell for the third month in a row, although the rate of job reduction was far softer than in May and only marginal.

Efforts to improve stocks of inputs meanwhile led firms to raise purchasing activity in June, marking the first expansion since February and the quickest seen in six-and-a-half years. Stocks were slower to arrive, though, as vendors continued to face travel restrictions with increased checks on roads and at ports.

Rising average input costs were again evident at Colombian manufacturers. Panelists noted that raw material shortages led some suppliers to raise prices, while a stronger US dollar led to increased import costs. The overall rate of inflation was steep but eased from May’s 55-month high. At the same time, firms raised selling charges at its quickest pace since March 2017.

Lastly, the overall degree of sentiment toward future manufacturing production rose to its highest in four months during June. Firms highlighted recent government measures to reopen the economy after the lockdown, noting that this would likely lead to a recovery in sales. Most firms expect output to grow over the coming months, although some respondents were wary of increasing case numbers in the region and the associated risk to activity growth.

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