UPDATE 3-Colombia cuts 2013 GDP growth target to 4.5 pct from 4.8 pct

Thu Jun 13, 2013 5:20pm EDT

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By Helen Murphy

BOGOTA, June 13 (Reuters) - Colombia has lowered its target for economic growth for the year to 4.5 percent from the previous 4.8 percent, Finance Minister Mauricio Cardenas said on Thursday, reacting to weak overseas demand and a sluggish manufacturing sector.

After months of sticking to the more optimistic growth estimate, Cardenas said tepid first-quarter growth will prevent the hoped-for annual acceleration in gross domestic product. The economy likely grew 3 percent in the first three months of the year, down from 5.3 percent in the same quarter a year earlier, he said.

Economic growth eased to 4 percent last year from 6.6 percent in 2011. Cardenas had hoped a package of stimulative measures announced in April, including accelerated spending on infrastructure and aid to the construction sector, would push GDP growth up to 4.8 percent this year.

"The economic panorama is good; we started the year with a regular first quarter in the industrial sector," Cardenas said at a financial conference in Bogota on Thursday. "We've revised the estimate from 4.8 percent to 4.5 percent, we lowered it, but 4.5 percent is a good prognosis and would be a good result for the year."

Cardenas kept his estimate for the central government's budget deficit at 2.4 percent of GDP for this year, and said it would be 2.3 percent in 2014.

Colombia's economy, mostly driven by oil and mining, has been hit by weak overseas demand due to the global economic slump, which has pushed commodity prices lower. Some economists reckon the government's new GDP estimate is still too optimistic. The government will release first quarter growth data on June 20.

Nomura Securities has lowered its growth estimate to 3.8 percent from 4.2 percent, and the central bank forecasts 4.3 percent.

"We don't foresee any meaningful impact from the fiscal-impulse program announced by the government," Nomura said in a recent note to investors. "The bulk of the program is just front-loading investment that had been announced for later in the year."

FINANCING FLEXIBILITY

Industrial production has fallen in the past five months, while the value of exports has decreased for seven straight months. Exports and factory output have been hurt by a strong peso that makes local costs more expensive and dollar revenue weaker.

Colombia has cut its key lending rate by 200 basis points since last July to counter weak international demand for commodity exports and a slowdown in domestic demand in the $330 billion economy. The central bank put rate cuts on hold in April to see if they were enough to revive the slowing economy.

Later on Thursday, Cardenas will reveal any revisions to financing plans for this year and estimates for local and overseas debt sales for 2014.

The government has "flexibility" when it comes to debt issues and could substitute local peso-denominated debt, known as TES, for bank loans or for multilateral loans if necessary, he said on Thursday.

An improved outlook in the United States has already shown signs of leading investors away from emerging markets such as Colombia, pushing the yield on local TES bonds higher.

"We have the flexibility that allows us to administrate these types things with a lot of ease and facility," he said.

Cardenas' comments pushed the yield on TES binds maturing in July 2024 lower to 6.37 percent from 6.55 percent on Wednesday.

"Just those words alerted investors to their screens and caused a correction in the yield," said Luis Acevedo, an analyst at Bogota-based brokerage Serfinco. (Reporting by Helen Murphy and Carlos Vargas; Editing by Leslie Adler, Phil Berlowitz and Peter Galloway)

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