Colombia’s Economy Expands at Fastest Pace in Six Quarters

Posted on Dec 19 2013 - 11:19pm by Editor

(Bloomberg) Colombia’s economic growth accelerated in the third quarter, led by construction and agriculture, after the central bank cut interest rates seven times in the nine months through March.

MDG : Medellin in Colombia : A peddler stays by posters with the image of drug lord Pablo EscobarGross domestic product expanded 5.1 percent from a year earlier, compared with a revised 3.9 percent in the second quarter, the national statistics agency said today in Bogota. The expansion was faster than the 4.3 percent median forecast of 31 analysts surveyed by Bloomberg. GDP expanded 1.1 percent from the previous quarter.

South America’s lowest interest rate and a government stimulus plan to boost home-building are helping Colombia’s economy gain momentum after growth reached the lowest in almost four years in the first quarter. The acceleration in growth to its fastest pace in six quarters means the central bank probably won’t consider another reduction in borrowing costs at its policy meeting tomorrow, said Camilo Perez, chief economist at Banco de Bogota.

“With this number, it’s very unlikely, if not impossible, that people will continue to think about an interest rate cut,” Perez said in a phone interview. “It tells you that they will probably raise rates sooner, in March or April.”

Construction Boom
All but one of 26 analysts surveyed by Bloomberg forecast that the central bank will leave its policy rate unchanged for a ninth straight month at its December meeting.

Policy makers cut the benchmark interest rate by 2 percentage points between July 2012 and March, pushing it to 3.25 percent. Colombia’s third quarter expansion compares with 4.4 percent growth in Peru and 4.7 percent in Chile.

The expansion was driven by the construction sector, which grew 21.3 percent from a year earlier. Agriculture expanded 6.6 percent, led by a recovery in coffee output, while mining and energy expanded 6.1 percent. Industry was the only sector that declined, contracting 1 percent from a year earlier.

Unemployment Rate
The national unemployment rate fell to 7.8 percent in October, its lowest level since 1995, led by increased employment in service industries such as hotels and restaurants. The government will raise the minimum monthly salary next month, with employer groups offering 4 percent and labor union leaders demanding 6 percent. The current level is 589,500 pesos ($303).

Even as growth accelerates, inflation has slowed. Consumer prices (COCPIYOY) rose 1.76 percent in November from the year earlier, the slowest pace since 1955, as food and housing costs fell.

In the minutes to its November meeting, the central bank’s board said that the “sharp and unexpected” drop in inflation would create conditions for more monetary stimulus if growth was at or below expectations. Mexico, Chile and Peru all cut interest rates in the fourth quarter.

In April, the government of President Juan Manuel Santos announced a 5 trillion-peso stimulus package including subsidized housing loans intended to increase growth by 0.7 percentage point this year.

Santos said this week that Colombia can achieve “Asian” levels of growth if it invests in infrastructure such as 4G telecommunications technology, and if a peace deal with Marxist guerrillas brings an end to the country’s civil conflict.

Government negotiators have held talks since November last year with representatives of the Revolutionary Armed Forces of Colombia, or FARC, in Havana, in a bid to end a 50-year war.