Academic literature on the topic 'Trade contractor'

Purpose – Trade credit (TC) provides access to capital for construction contractors globally and is an important source of finance in both developed and developing countries. The purpose of this paper is to explore key factors underpinning construction suppliers’ decisions to provide TC to Ghanaian construction firms. Design/methodology/approach – Primary data from a structured survey of 75 construction suppliers are analysed. Principal component (factor) analysis explores complex structures among suppliers’ decision-making variables. Findings – Underlying constructs of decision criteria exist among seven key factors: financial profile of the contractor; parties’ profit margins; asset portfolio and project particulars; TC quantum and repayment terms; age and experience of the contractor; contractor corporate image; and parties’ cash flows. Originality/value – This is a new decision criteria framework for suppliers and contractors, who utilise TC.

Some methods allowing for the selection of the most suitable contractor based on 26 criteria are offered. The bidding procedures of FIDIC, the international organization of consulting engineers are assessed. Contractors are evaluated by a multicriteria decision method COPRAS. The significance of the contractor evaluation criteria is determined by ranking. A description of the criteria and their rankings according to 100‐point scale are provided. A case study of selecting the contractor for the construction of a trade and entertainment centre out often bidders is also described.

In Japan, residents of apartments are generally contracted to receive low voltage electricity from electric utilities. In recent years, there has been an increasing number of high voltage batch power receiving contracts for condominiums. In this research, a high voltage batch receiving contractor introduces a demand–response in a low voltage power receiving contract, which maximizes the profit of a high voltage batch receiving contractor and minimizes the electricity charge of residents by utilizing battery storage, electric vehicles (EV), and heat pumps. A multi-objective optimization algorithm calculates a Pareto solution for the relationship between two objective trade-offs in the MATLAB ® environment.

The three key drivers of a project success include cost, completion time, and scope, the interplay of which have a significant impact on the decision making in project management. In this study, we propose a theoretical framework to be used as a Project Management Decision Support System for understanding and balancing the interplay between the project cost and quality, which is a key component of the project scope. To this end, we develop a Decision Support Contract (DSC) for a project manager when outsourcing to a contractor whose delivery outcome is subject to quality risk. On the one hand, to reduce the risk of project failure, the contractor can invest in a quality improvement effort, the cost of which is the contractor’s private information. On the other hand, the contractor’s decision on quality improvement is unobservable to the project manager. In designing the DSC, we consider both problems resulting in information asymmetry between the project manager and the contractor. We first obtain the first-best solution assuming that the cost efficiency of the contractor is publicly known, and then solve for the second-best optimal cost plus incentive fee (CPIF) contract under information asymmetry. Our comparative study between the first- and second-best contracts reveals that the project manager may prefer to incur efficiency loss due to underinvestment decision by the high-cost contractor to reduce the information rent demanded by the low-cost contractor. Finally, we compare the effectiveness of CPIF contract to that of fixed-price contract, which enables us to characterize the value of incentive fee term for the project manager. This latter analysis reveals that incentive-fee term is more valuable when the improvement effort is more likely to reduce the quality failure risk.

Construction sites are dynamic environments due to the influence of variables such as changes in design and processes, unsteady demand, and unavailability of trades. These variables adversely affect productivity and can cause an unstable workflow in the network of trade contractors. Previous research on workflow stability in the construction and manufacturing domains has shown the effectiveness of ‘pull’ production or ‘rate driven’ construction. Pull systems authorize the start of construction when a job is completed and leaves the trade contractor network. However, the problem with pull systems is that completion dates are not explicitly considered and therefore additional mechanisms are required to ensure the due date integrity. On this basis, the aim of this investigation is to improve the coordination between output and demand using optimal-sized capacity buffers. Towards this aim, production data of two Australian construction companies were collected and analyzed. Capacity and cost optimizations were conducted to find the optimum buffer that strikes the balance between late completion costs and lost revenue opportunity. Following this, simulation experiments were designed and run to analyze different ‘what-if’ production scenarios. The findings show that capacity buffers enable builders to ensure a desired service level. Size of the capacity buffer is more sensitive to the level of variability in contractor processes than other production variables. This work contributes to the body-of-knowledge by improving production control in construction and deployment of capacity buffers to achieve a stable workflow. In addition, construction companies can use the easy-to-use framework tested in this study to compute the optimal size for capacity buffers that maximizes profit and prevents late completions.

Cap-and-trade has become one of the most widely used carbon emission limitation methods in the world. Its constraints have a great impact on the carbon emission reduction decisions and production operations of supply chain enterprises, as well as profit distribution. In the construction supply chain, there are few studies on the profit distribution and emission reduction decisions considering cap-and-trade policy. This paper investigates the profit distribution model of a two-echelon construction supply chain consisting of a general contractor and a subcontractor with cap-and-trade policy. Using game theory and Shapley value method, the optimal emission reduction decisions and profit distribution under three cooperation modes of pure competition, co-opetition, and pure cooperation are obtained, respectively. The research shows that the profits of the construction supply chain are increasing in pure competition, co-opetition, and pure cooperation scenarios, and the emission reduction amount of the construction supply chain in the case of pure cooperation is greater than that of pure competition and co-opetition. The carbon emission reduction amount under the co-opetition scenario is not always greater than that under the pure competition scenario, which depends on the emission reduction cost coefficient relationship of general contractor and subcontractor. When the cost coefficient of emission reduction of the general contractor is less than that of the subcontractor, the emission reduction amount under pure competition is larger than that under co-opetition. A numerical study is carried out to verify the conclusions and illustrated the profits of the supply chain decreased with the increase of carbon emission reduction cost coefficient, and had nothing to do with the emission reduction efficiency of enterprises.

Chinese enterprises are presently dominating various sectors of businesses abroad, offering a wide range of low to high-end quality products and services. The construction sector in Africa is now being dominated by Chinese multinational contractor companies, who find in Africa their next preferable market to grow. The available literature on the field has serious gaps in explaining which organisational strategies increase the competitive advantage and the market dominance of Chinese multinational contractors, especially in the Southern African region. This research aims to uncover the organisational strategies, implemented by Chinese multinational contractors operating in the Southern African region, who have paved the way and consolidated their success in the region. Through a mixed methods process, qualitative and quantitative data are obtained. The construction markets of the Southern African region are analysed (environmental analysis) and the main multinational Chinese contractors are identified, through a literature review and organisational analysis. Several organisational strategies are shortlisted and, finally, through an online questionnaire, the opinions of the participants to rank the organisational strategies previously identified in terms of contribution to the actual success, copying capability, etc., are carried out. The findings revealed that the capability to offer a lower price for construction services, the easy access to loans and funds from the organisation's home government and the capability to trade debt for local resources, such as wood, land and minerals are the organisational strategies that mostly contributed to the recent Chinese contractor dominance in the Southern African construction market.

Thesis (MBA)--Stellenbosch University, 2002.
ENGLISH ABSTRACT: Changes in the global salt market have presented Walvis Bay Salt Refiners with an opportunity to increase its current sales by approximately 40%. Following several pre-feasibility studies, the expansion project plan was created. The construction of new ponds, canals and sluices were to be performed by a subcontractor as selected through a tender process. The scope of the work comprised approximately 70% of the total project cost and it also represented the most critical part of the expansion project. Thomas Saaty’s Analytic Hierarchy Process, was used as a group decision support system for the selection of the most suitable subcontractor. The weighted average mean method was used to aggregate individual scores. A sensitivity analysis was performed following the final outcome to gain a deeper understanding of the problem, obtain a measure of margin between subcontractor scores and to check for the correctness of numbers.
AFRIKAANSE OPSOMMING: Veranderinge in die wêreld soutmark het vir Walvis Bay Salt Refiners 'n geleentheid gebied om sy verkope met ʼn beraamde 40% te verhoog. Na verskeie voorondersoeke is 'n volledige projekplan opgestel. Die vervaardiging van damwalle, kanale en sluise sou deur 'n kontrakteur gedoen word wat deur ʼn tenderprosedure gekeur sou word. Die omvang van hierdie gedeelte van die uitbreidingsprojek verteenwoordig ongeveer 70% van die totale projekkostes en is terselfdelyk die mees sensitiewe gedeelte van die projek. Thomas Saaty se Analytic Hierarchy Process is gebruik as die groepbesluitnemingsondersteuningstelsel om die mees geskikte kontrakteur te kies. Die geweegde gemiddelde is gebruik om die individuele oordele saam te voeg. Sensitiwiteits analise is uitgevoer nadat die finale uitslag bepaal is om sodoende beter insig in die probleem te ontwikkel, om ʼn beter onderskeiding tussen die kontrakteur puntetellings te kry en om die juistheid van die syfers na te gaan.

Fatal occupational injury is a construction and management problem in the United States. Fatality rates among specialty trade contractors made up the largest percent of fatalities in construction at 62% per year. The purpose of this nonexperimental study was to examine the relationship between the quality of information in construction safety plans and construction safety among specialty trade contractors. The theoretical foundations for the study were Petersen'€™s accident/incident theory and work systems theory. The key research question was to examine the relationship between information quality and construction safety among specialty trade contractors. A survey with closed-ended questions was used to collect primary data from a self-selection sample of 134 specialty trade contractors in the United States. Spearman rank correlation coefficient (rs) was used to measure the strength of the relationship between information quality and construction safety. Results indicated that the quality of information in construction safety plans (measured by the relevance, accuracy, timeliness, and completeness of information) did not have any statistically significant relationships with construction safety among U.S. specialty trade contractors. Further research is needed to understand if the variables used in this study are relevant predictors for construction safety. This study connects with positive social change by bringing into focus quality information systems research required to improve safety among U.S. specialty trade contractors and provide safety professionals a direction for continuous safety improvement in the U.S. construction industry, thus benefitting construction stake holders.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003.
Includes bibliographical references (p. 163-171).
This dissertation consists of three essays in the intersection of the theory of international trade and the theory of the firm. The first essay starts by unveiling two systematic patterns in the volume of intrafirm trade. I then show that these patterns can be rationalized in a theoretical framework that combines a Grossman-Hart-Moore view of the firm with a Helpman-Krugman view of international trade. In particular, I develop an incomplete-contracting, property-rights model of the boundaries of the firm, which I then incorporate into a standard trade model with imperfect competition and product differentiation. The model pins down the boundaries of multinational firms as well as the international location of production. Econometric evidence reveals that the model is consistent with other qualitative and quantitative features of the data. In the second essay, I develop a dynamic, general-equilibrium Ricardian model of North-South trade, in which the incomplete nature of contracts governing international transactions leads to the emergence of product cycles. Following the property-rights approach to the theory of the firm, the same force that creates product cycles, i.e. incomplete contracts, opens the door to a parallel analysis of the determinants of the mode of organization. The model is shown to deliver endogenous organizational cycles. I discuss several macroeconomic and microeconomic implications of the model and relate them to the previous literature on the product cycle. The third essay, co-authored with Professor Helpman from Harvard University, provides a theoretical framework for studying global sourcing strategies. In our model, heterogeneous final-good producers choose organizational forms. That is, they choose ownership structures and locations for the production of intermediate inputs.
(cont.) We describe an equilibrium in which firms with different productivity levels choose different ownership structures and supplier locations. We then study the effects of within-sectoral heterogeneity and variations in industry characteristics on the relative prevalence of these organizational forms. The analysis sheds light on the structure of foreign trade within and across industries.
by Pol Antràs.
Ph.D.

The importance of knowledge as a potential source of sustainable competitive advantage is increasingly appreciated by both policy-makers and practitioners. This issue is particularly pertinent to the construction industry, which represents a significant contribution to a nation's GDP and employment, but whose performance is repeatedly highlighted as unsatisfactory.

Today it is well known that institutions have a significant impact on growth and development. Less research has been investigating how institutions and in-stitutional quality affect trade. This thesis will specifically examine the effect contract enforcement has on bilateral trade. Secure property rights and con-tract enforcement are important for a country’s productivity and growth.

The empirical analysis is based on the gravity model of trade to examine what explains the trade flows and more importantly what impact contract enforce-ment has on the bilateral trade. Instead of using one of the many existing sub-jective measurements of contract enforcement, an objective measurement called Contract-Intensive Money (CIM) is used.

The results show that contract enforcement of the exporting country has a greater impact on exports than that of the importing country. As expected the institutionally dependent sector of machinery and transport equipment requires a higher level of contract enforcement than the standardized food sector. It implies that the exporting country will have a comparative advantage in export-ing complex products and import simple products. The results also indicates that the effect on exports is higher when there is development of a country’s poor contract enforcement rather than improvement in already high-quality contract enforcement in the partner country.

This dissertation discusses the evolvement of Chinese Contractual law and establishes as to whether it converges or has any similarity with any Western legal norms and standards. I will view the recent history and early sources of Chinese law as influenced by political changes and tradition; as well as the influence of international commercial transaction agreements. The formation of a contract, standard terms and modification of contracts and the dissolution and breach in Chinese contracts will be discussed and also whether parties do in fact have the freedom to enter agreements with each other without third party interference. The role played by the Judiciary when addressing the issue of contractual disputes and in particular the Interpretations and Opinions of the Supreme Peoples' Court of China on the new Chinese Contract Law will be considered, as well as whether the concept of Doctrine of Precedent as practiced in the West does in fact exist in China. My motivation for choosing this topic is based on the fact that China is (1) the second largest economy in the world and her consequential impact on world trade, (2) its economic influence in the world especially Africa, (3) the fact that China is South Africa's largest trade partner, (4) South Africa's membership of BRICS [1] , and (5), China's growing influence in the world in the creation of parallel institutions to the West, such as the New Development Bank (formerly known as the BRICS Development Bank) rivalling current Western institutions such as the World Bank and the International Monetary Fund.

Contractual arrangements have been the subject of a substantial body of economic research. In particular, economists have sought an explanation for the existence of share contracts. Under this kind of contract, two or more parties share in the output of the production process. These contracts present a problem to economists because they imply more than one residual claimant. Thus incentives are diluted and inefficiency is expected to result. But this type of contract has existed for centuries and continues to be used today. Why is that if they are inefficient? The answer is that under conditions of uncertainty and imperfect information, share contracts can be preferable to fixed-wage (vertical integration) or fixed-rent (market transaction) agreements. In fact, many explanations for the existence of share contracts and their coexistence with fixed-wage and rental arrangements are found in the theoretical literature. While the theoretical literature on the subject of share contracts has flourished over the last decade, empirical analyses of these models has lagged behind. This thesis aims to rectify the situation somewhat. More precisely, recent advances in the theoretical literature are applied to the analysis of franchise contracts. An empirical model of franchising based on profit-maximizing behavior is developed which makes it possible to examine whether the factors theorists have suggested as potential explanations for share contracts are relevant when it comes to explaining what one observes in the context of franchising, and whether their effects are consistent with predictions from the various theories. Both the contract mix, i.e. franchisors' decisions concerning the proportion of stores they want to operate and franchise, and the terms of the franchise contract, fixed and variable fees, are examined. In order to carry out the analysis, data on a cross-section of 548 individual franchisors in 1986 were gathered. These franchisors are involved in a variety of business activities in the U.S., such as Fast-food Restaurants, Business Aids and Services, Construction and Maintenance, and Non-food Retailing. Censoring problems arise from the fact that a number of franchisors in the sample franchise all of their outlets. Also, some firms require no variable or no fixed fee. For these reasons, the maximum likelihood Tobit estimator is used. Empirical work in an area such as this, where theories rely on concepts that are not easily quantifiable, can hardly provide unambiguous answers about the validity of the theories. Nevertheless, the following results emerge from the empirical analysis. First, the effect of risk, measured either by the proportion of discontinued outlets or by the variance of sales in the sector, is found to be the opposite of what pure risk-sharing and one-sided hidden-action models would predict. Second, firms resort to franchising more often when monitoring downstream operators becomes costlier, and use it proportionately less when the value of the inputs they themselves provide increases. This is consistent with two-sided hidden-action models. Results with respect to capital-market-imperfection arguments are rather inconclusive. It appears that franchising relaxes some form of constraint franchisors face in trying to expand their operations, since they use it more when they are growing faster, but whether this is a financial constraint remains unclear. The explanatory power of the model is greater with respect to the proportion of franchised stores than it is for any of the two fees. Thus, in response to changes in the exogenous variables considered here, franchisors, who have a choice between modifying the terms of their franchise contract or changing the proportion of stores they want to franchise, tend to do mostly the latter. Contrary to what one would have expected on a theoretical basis, the observed royalty rates and franchise fees are not negatively correlated in this data set. Combined with the fact that the model is less satisfactory relative to the fees, this suggests that there are considerations in the determination of the royalty rate and the franchise fee that have not been taken into account in the theories. One possibility in the case of the fixed fee is that it may include the price of services provided by the franchisors. It also appears that franchisors use input sales as another means to extract rent from franchisees. This may contribute to the lack of correlation between the two fees. Finally, the equation for the franchise fee was derived under the assumption that all remaining surplus at the downstream level, given the royalty rate, should be extracted through the franchise fee. The lack of relationship between the fees could be an indication that this assumption is incorrect, and that there are in fact rents left at the downstream level. This would be consistent with the existence of queues of potential franchisees in many franchise chains.
Arts, Faculty of
Vancouver School of Economics
Graduate

Turkey and the Russian Federation (RF) have deep historical political and economic relations. The trade between the two countries have been growing since late 1980s when Turkey began to procure natural gas from Russia. The dissolution of USSR and the revival of Russian economy offered new opportunities for Turkish businessmen. During the last decade, Russia became one of the few major markets for Turkish construction and contractor companies whereas Turkey has been a favorable touristic destination for Russians. The agreements regarding Akkuyu nuclear power plant and natural gas pipelines have strengthened the ties between the two countries. In 2012, Russia became the 156th member of the WTO. Russia’s WTO accession, along with the country’s other economic cooperation and integration moves provide foreign companies interested in Russia with a better investment climate and business environment. Having competitive advantage in many goods and services categories needed by Russia, Turkish companies should benefit the new developments in RF and increase their business volumes in that country. This paper examines the current trade relations between RF and Turkey in detail considering the potential effects of RF’s WTO membership.

The current status of Japan’s national Ceramic Gas Turbines (CGTs) projects is overviewed. The Japanese Ministry of International Trade and Industry (MITI) is conducting two national R&D projects on CGT. These include a project on 300kW industrial CGTs for co-generation and mobile power generation use and a project on 100kW CGT for automotive use. The 300kW project was started in 1988, and is scheduled to develop three kinds of CGTs over nine years. The New Energy and Industrial Technology Development Organization (NEDO) is the main contractor, and three groups of private industries are sub contractors. Three national research institutes are involved in the project to conduct supportive research of ceramic materials and engine components. The 100kW project has started in 1990, and is scheduled to develop a single shaft automotive CGT over seven years. Petroleum Energy Center (PEC) and JARI are the main contractors with the cooperation of several petroleum and automotive companies. The goals for the two projects are 42% and higher for thermal efficiency at a turbine inlet temperature of 1350C. Such targets could not be achieved without applying high temperature ceramics to the engine components. Therefore many R&D objectives are directed towards developing the ceramic components which have a higher flexure strength and fracture toughness. Currently, 300kW base metal gas turbine engines are being developed to prove the design concepts. Blade shapes suitable to ceramics are being studied by the FEM method. Forming and manufacturing large components are also being studied, and some ceramics components have been successfully made.

The Japanese Ministry of International Trade and Industry (MITI) has started two nine-year national R&D projects for small-capacity ceramic gas turbines (CGTs) from 1988, following several preliminary investigations of the technical aspects and of the social impacts of CGTs. Planned 300kW industrial ceramic gas turbines are to be used for co-generation and mobile power generation. The goals are 42% and higher for the thermal efficiency at the turbine inlet temperature of 1350°C, and the emission from the exhaust gas should meet the regulatory values. Also ceramic components have the goals of 400MPa for the minimum flexure strength at 1500°C, and 15 MPam1/2 for the fracture toughness. New Energy and Industrial Technology Development Organization (NEDO) is the main contractor, and three groups of private industries are the subcontractors for 300kW industrial CGT project. Three national research institutes are involved in the projects to conduct supportive research of ceramic materials and engine components as well as to carry out assessment of the materials and engine systems developed by the private industries. The development of 100kW CGT for automotive use was also recommended in the above stated investigations and a two-year preliminary study started in 1988. The full-scale 100kW automotive CGT R&D project is scheduled to start in 1990 after the preliminary study. Japan Automobile Research Institute, Inc. (JARI) is the main contractor for 100kW automotive CGT project with the cooperation of three automobile companies.

NGK Insulators, Ltd. (NGK) has undertaken the research and development on the fabrication processes of high-heat-resistant ceramic components for the CGT301, which is a 300kW recuperative industrial ceramic gas turbine engine. This program is under the New Sunshine Project, funded by the Ministry of International Trade and Industry (MITI), and has been guided by the Agency of Industrial Science & Technology (AIST) since 1988. The New Energy and Industrial Technology Development Organization (NEDO) is the main contractor. The fabrication techniques for ceramic components, such as turbine blades, turbine nozzles, combustor liners, gas-path parts, and heat exchanger elements, for the 1,200°C engine were developed by 1993. Development for the 1,350°C engine has been underway since 1994. The baseline conditions for fabricating of all ceramic components have been established. This paper reports on the development of ceramic gas turbine components, and the improved accuracies of their shapes as well as improved reliability from the results of the interim appraisal conducted in 1994.

On September 11, 2001, the terrorist attacks that destroyed the World Trade Center (WTC) in Lower Manhattan, New York City, also damaged the Port Authority Trans-Hudson Corp.’s (PATH’s) busiest terminal serving the heart of the thriving downtown financial, commercial, and residential district. The aftermath of the attacks also forced the closure of PATH’s key station at Exchange Place that serves Jersey City, New Jersey’s expanding “Gold Coast” business and residential area. PATH’s more than 260,000 average weekday commuters between New Jersey and New York were affected in some way by these tragic events, and PATH ridership fell sharply during the following months. Among the PATH facilities that were damaged or destroyed at WTC, and in the two Hudson River tubes, and at Exchange Place Station were all of the electrical, power, signal, and communications systems. Recovery and restoration work began immediately, but was hampered by the extensive rescue, recovery, removal, and demolition work at the World Trade site. Broken water lines and fire fighting efforts flooded both river tubes, which were later sealed at Exchange Place to prevent additional potential damage to PATH’s New Jersey facilities. This paper describes PATH’s recovery program to replace the electrical, power, signal, and communications facilities from Exchange Place to the WTC Terminal. A temporary WTC terminal has been built to restore direct service to Lower Manhattan’s financial, business, and residential center as of November 23, 2003. As part of this program, new trackwork was installed to enhance operational flexibility and provide temporary interim service to Exchange Place Station, which reopened June 29, 2003. Capacity expansion provisions were included to allow for future 10-car train operations when a new rail car fleet is procured. Facilities replaced include a new traction power and auxiliary services substation, new cables, ductbanks, new signals and central control system, wayside phones, emergency power removal switches, tunnel lighting, radio antenna, and fiber optics. An accelerated design and construction schedule was followed, using a broad combination of in-house, consulting, and contractor forces.

United Nations Convention on Contracts for the International Sale of Goods (CISG) entered into force on the 1st August 2011 in Turkey. CISG is accepted with the purpose of development and encouragement of international trade and application of uniform rules for resolution of disputes arising from the contracts for the international sale of goods. CISG applies to contracts of sale of goods between parties whose places of business are in different states when the states are contracting states; or when the rules of private international law lead to the application of the law of a contracting state. Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of CISG. In order to apply CISG, there has to be a contract about international sale of goods and the parties shall be from different contracting states or the rules of private international law shall lead to the application of the law of a contracting state. The parties may totally or partially exclude the application of this CISG. CISG does not apply in terms of third party rights and the validity of the contract or of any of its provisions or of any usage.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.