Thursday, December 1, 2022

Colombian Growth Slows to 4.7% as Peso Rally Hits Exporters

Colombia’s economy grew at its slowest pace since 2010 in the first quarter as public works spending slumped and the world’s strongest currency rally this year hurt farmers and manufacturers.

Gross domestic product grew 4.7 percent from the year earlier, the national statistics agency said in a report, in line with the median forecast of 27 analysts surveyed by Bloomberg. The figure lagged growth in Chile, Peru and Argentina, and exceeded expansion in Brazil and Mexico.

Finance Minister Juan Carlos Echeverry last week cut his 2012 growth forecast and said Colombia could use fiscal and monetary policy to stimulate demand if Europe’s debt crisis deepens and takes a toll on emerging markets. Economists surveyed by Bloomberg expect the central bank to hold the benchmark interest rate at 5.25 percent for a fourth straight policy meeting next week as it gauges the effect of European turmoil on the Andean nation.

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The slowdown was “in part due to the stronger local currency having an impact on exports, and there are also signs of weaker local demand,” said Camila Estrada, chief analyst at Bogota-based Helm Bank SA (PFBHELMB), who had forecast 4.6 percent economic growth.

Echeverry cut his forecast for 2012 growth to 4.8 percent, from 5 percent.
Construction Decline

The slowdown was led by a 0.6 percent contraction in the construction industry after public works spending fell 8.1 percent from a year earlier, the statistics agency said. Central bank chief Jose Dario Uribe said last week that the fall in public works had surprised him.

Agriculture contracted 0.4 percent, led by a 26 percent drop in coffee.

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The peso has appreciated 9 percent against the dollar this year, the most of 170 currencies tracked by Bloomberg, leading to complaints from exporters such as coffee, banana and flower growers. Echeverry last week urged the central bank to take “more aggressive” action to curb the rally, while Uribe said the country wants a weaker peso.

President Juan Manuel Santos has repeatedly expressed concern that the appreciation of the peso could harm Colombian manufacturers.

The mining and energy industries registered the strongest growth, expanding 12.4 percent from a year earlier. Financial services grew 6.7 percent. Gross domestic product grew 0.3 percent from the previous quarter.
Interest Rates

Policy makers cited cooling demand, the European crisis and cheaper oil for their decision to leave rates unchanged last month. The bank raised borrowing costs last year, bucking a global trend for cheaper money, to cool growth spurred by credit expansion and record levels of foreign investment in the oil and mining industries. Estrada said the slowdown in growth makes it unlikely that central bank will raise rates this year.

The yield on Colombia’s benchmark 10 percent peso- denominated debt bond due in July 2024 fell four basis points to 7 percent at 11:48 a.m. in Bogota, according to the central bank. That’s the lowest level on a closing basis since the securities were issued in 2009. Yields on the benchmark securities have fallen from 7.15 percent a month ago as the Andean economy showed signs of cooling, and traders increased bets on interest rate cuts.

Retail sales fell 2.8 percent in April from a year earlier, the first year-on-year decline since September 2009, the statistics agency said in a report yesterday. The result was worse than all 16 forecasts in a Bloomberg survey of economists, whose median estimate was for a 4.1 percent increase.
Share Rally

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Industrial output contracted 1.6 percent over the same period, the agency said, compared with the median estimate from 17 economists surveyed by Bloomberg of a 1 percent increase. Urban unemployment unexpectedly rose in April, while building permits fell 29.7 percent from a year earlier.

Even as the economy slows, Colombia’s IGBC stock index has risen 20 percent in dollar terms this year, led by oil companies Ecopetrol SA (ECOPETL) and Pacific Rubiales Energy Corp. (PRE) The market has outperformed Chile, Peru, Mexico and Brazil.

Shares in state-run Ecopetrol have risen 40 percent in dollar terms this year, the most of oil companies with a market capitalization of more than $50 billion. Oil accounted for 49 percent of the country’s exports last year.

Annual inflation slowed to 3.44 percent in May, from 3.73 percent at the start of the year. Colombia targets inflation of 3 percent, plus or minus one percentage point.

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