Colombia economy surprisingly weak, slowest in 3 years

BOGOTA  (Reuters) – Colombia posted surprisingly weak third-quarter growth on Thursday as the global slowdown bit into expansion and boosted the likelihood policymakers would cut the benchmark interest rate to spur the sluggish economy.

  • Economy hurt by weak industry, construction data
  • GDP contracts in third quarter vs previous three months
  • Experts say central bank may cut key interest rate on Friday

The Andean country’s gross domestic product grew just 2.1 percent in the third quarter compared with the same period in 2011 – its slowest pace since the third quarter of 2009 – and well below analysts’ expectations.

The result was also much slower than the 7.5 percent expansion recorded in the same quarter last year.

The economy also contracted 0.7 percent in the third quarter from the previous three months, hurt by poor performances in industry and construction, the official statistics agency said.

The slower pace of growth may give the central bank board room to cut its benchmark interest rate at its monthly meeting on Friday after a surprise cut last month aimed to boost expansion in Latin America’s fourth-largest economy.

“It was a total surprise. No one had been so pessimistic,” said Camilo Perez, head of economic research at Banco de Bogota, who said earlier this week that he thought the bank would hold rates.

“This data changes the picture a little for us and we now expect the bank to cut its interest rate on Friday,” he added.

The forecast of a Reuters poll of 25 economists on Monday expected annualized growth of 3.97 percent in the third quarter. The central bank had forecast the economy would post growth of between 3.3 percent and 4.8 percent.

The economy expanded 4.9 percent in the second quarter.

Colombia’s third-quarter growth was still faster than Brazil’s 0.9 percent, but slower than the 3.3 percent in Mexico, 5.7 percent in Chile and 6.5 percent in Peru.

The nation’s economy was dragged down in the quarter by a steep decline in the construction sector and weaker manufacturing, falling 12.3 percent and 0.1 percent, respectively.

Investment in public works dropped nearly 15 percent in the period, while mining rose a modest 0.5 percent and the entertainment sector grew 3.7 percent.

The government had expected the economy to grow 4.8 percent in full-year 2012, but the Finance Ministry may end up revising down the estimate following the third-quarter reading.

Fallout from a weakening global economy has forced the central bank to cut rates three times this year in an effort to boost growth while inflation remains near the mid-point of the monetary authority’s 2 percent to 4 percent target range.

A majority of economists expect the bank to cut its interest rate on Friday after a slowdown in economic growth in the third quarter, according to a Reuters poll on Thursday.

Now 16 of 24 economists believe the monetary authority will lower its rate from the current 4.50 percent compared with a survey on Monday where 23 of 26 experts said the bank would keep its interest rate steady.

The first major data published in the fourth quarter showed continued weakness in the economy. Retail sales fell 0.3 percent in October while industrial production rose only 1.2 percent.

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