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Colombia Growth Slows More Than Forecast

Colombia Growth Slows More Than Forecast

Posted by Juan Gavasa on September 17, 2014

Colombia’s economic growth slowed more than forecast in the second quarter as oil and mining output contracted amid a surge in attacks by Marxist guerrillas. Bond prices rose.

Gross domestic product expanded 4.3 percent from a year earlier, down from a revised 6.5 percent in the first three months of the year, the national statistics agency said today. The gain compares with the 4.6 percent median forecast of 28 analysts surveyed by Bloomberg. GDP contracted 0.1 percent from the previous quarter.

Colombia, Latin America’s fastest growing major economy, has been in peace talks with the Revolutionary Armed Forces of Colombia, or FARC, for the past two years. Production of oil, which is Colombia’s biggest export, will decline for the first time since 2005 amid damage to pipelines caused by the Marxist guerrillas, according to the government. The Finance Ministry estimates growth could quicken to as fast 7 percent if the 50-year-old war against the rebels ends.

“The performance of oil and mining was somewhat disappointing,” Camilo Perez, chief economist at Banco de Bogota, said in a phone interview. “With all of the terrorist attacks and the falling output that have been announced, it’s evident that the sector isn’t doing too well.”

Oil Production

Oil and mining output contracted 2.2 percent from a year earlier in the second quarter, while manufacturing output fell 1.4 percent. Colombia’s state-controlled oil company, Ecopetrol S.A., cited pipeline disruptions for an 18 percent drop in its second quarter profits.

Two contractors working for Ecopetrol were assassinated near the Venezuelan border on Sept. 14, while inspecting a pipeline.

Boosting oil output is a priority for Colombia, to finance greater social investment, Cardenas said in an interview at Bloomberg’s headquarters in New York after the report was published.

The price on Colombia’s benchmark bonds due 2024 rose 0.36 centavo to 124.1 centavos per peso, according to data from the central bank. The yield dropped 4 basis points to 6.59 percent.

Colombia’s second-quarter year on year growth outstripped its major regional peers as construction activity rose 10.2 percent, led by a 17.6 percent rise in public works.

While Peru and Chile cut their benchmark interest this year to revive growth, Colombia has raised borrowing costs five times to tame inflation. Peru’s GDP expanded 1.7 percent in the second quarter, and Chile grew 1.9 percent. Brazil’s GDP contracted 0.9 percent.

After the report was published, Finance Minister Mauricio Cardenas said the government will maintain its forecast of 4.7 percent growth in 2014.

Near Potential

Preliminary data for the third quarter show “good numbers of manufacturing and, at the same time, we think we’re achieving potential GDP growth,” Cardenas said.

The central bank raised borrowing costs to 4.5 percent last month to control inflation that accelerated back to the midpoint of its target range for the first time in 22 months. Policy makers will hold the benchmark rate at this month’s meeting, according to the most recent central bank survey of economists.

Cardenas, who chairs central bank policy meetings, said in an Aug. 4 radio interview that the economy can grow 5 percent per year without stoking inflation. If the government reaches a peace agreement with Marxist rebels and overhauls its highway network, the economy will be able to grow at an additional 2 percentage points per year, he told investors in New York today.

Annual inflation accelerated to 3.02 percent in August, ending a 22-month period of below-target price increases. Colombia targets annual consumer price rises of 3 percent, plus or minus one percentage point.

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