What slowdown? Colombia Q2 growth hits 4.9 per cent

By Andrés Schipani – Financial Times

There is an adage in Spanish that goes: “Pain never lasts more than one hundred years.” At first sight, in any case, for the Colombian economy the pain seems to have lasted a quarter.

The recently-appointed finance minister, Mauricio Cárdenas, announced Thursday in Bogotá that Colombia’s gross domestic product grew 4.9 per cent in the second quarter, after expanding only 4.7 per cent in a rocky first quarter that was held back by weak growth of industry, oil output, and exports.

The 0.2 per cent quarter-on-quarter growth beat market expectations, which had projected another slowdown, to 4.3 per cent expansion from a year earlier.

“The Colombian economy is going to maintain a good growth rate, because while the second quarter had a setback especially in industry, what one sees with July data is that the worst has already passed,” Cárdenas said earlier this week, adding that “the economy had a bad time there in March, April, but it took off again.”

Latin America’s third-largest economy – at least according to Colombia – has been experiencing an impressive growth in recent years, boosted by rampant oil and coal production as well as consumer spending. The economy grew almost 6 per cent last year, and Cárdenas forecasts an expansion of between 4.7 and 5 per cent in 2012.

“A chunk of Colombia’s growth came through the huge wave of mining and energy, a strong fiscal position, the highest terms of trade in 25 years, low inflation, and high levels of investment. So everything points out that things could go well down the road,” said Marc Hofstetter, an economist with the University of Los Andes in Bogotá. Colombia is still one of the top performers in the region, behind Peru, which grew 6.1 per cent in Q2, and Chile, which saw Q2 growth of 5.5 per cent.
Nonetheless, some economists are concerned about Colombia’s increasingly reliance on the construction sector, the slowdown in the key mining and energy sector due to lower commodity prices, and a contraction in manufacturing of 0.6 per cent. The peso’s gains of about 7 per cent against the dollar this year are also hurting Colombian exports. “We are clinging from a building’s cornice with three fingers: construction, financials, and oil and energy,” said Munir Jalil, an economist with Citi in Bogotá.

Growth in the mining and energy sector for the quarter was 8.5 per cent, a sharp slowdown from the 12.4 per cent increase seen in Q1.

This was offset by the 18.4 per cent growth seen in the construction industry – which has been boosted by large public works projects, such as a new airport in Bogotá. But without the boost from construction, Q2 GDP growth would have been below 4 per cent, according to Jalil.

“If the construction finger drops, which is a volatile one, we will be left with a mining and energy sector that is not what it used to be, and a financial sector that is slowing down,” he said. Financial services grew only 5.1, compared with an increase of 6.7 per cent in Q1.

Little surprise then that Colombia’s central bank has acted on the cautious side, cutting rates at the last two policy meetings. The bank’s monetary policy board, where Cárdenas holds a seat, will meet Friday next week.

Minutes from the last central bank meeting show the bank expected a slowdown in Q2. Following the surprising strength of the Q2 numbers, the view is that the bank will sit tight on rates for the time being.

As Hofstetter, the economist, said: “In today’s world this growth rate is good. But it is not extraordinary.”


Source: Financial Times – Beyond BRICS

Web Site: http://blogs.ft.com/beyond-brics/2012/08/06/colombia-nothing-like-brazil/#axzz23eUnCFXv

© THE FINANCIAL TIMES LTD 2012 FT and \'Financial Times\' are trademarks of The Financial Times Ltd.

See FT’s Ts&Cs and Copyright Policy for more detail.
Email ftsales.support@ft.com to buy additional rights.
http://blogs.ft.com/beyond-brics/2012/09/20/what-slowdown-colombia-q2-growth-hits-4-9-per-cent/#ixzz27Vtivll5