UPDATE 2-Colombia's GDP growth slows to 2.8 percent in first quarter

Thu Jun 20, 2013 2:18pm EDT

By Helen Murphy and Nelson Bocanegra

BOGOTA, June 20 (Reuters) - Colombia's economic growth slowed in the first quarter to 2.8 percent from a year earlier, the government said on Thursday, as a series of labor disputes added to weak global demand that hit the Andean nation's exports and manufacturing sector.

The year-on-year growth is well below the expansion in the first quarter of last year, when it grew a revised 5.4 percent compared with 2011. The annual figure for the 2013 quarter met estimates in a Reuters poll.

The new data fell short of the 3 percent expansion expected by Finance Minister Mauricio Cardenas. The economy grew 0.3 percent from the fourth quarter.

"We aren't surprised by the number," Cardenas told reporters, adding the second quarter would be better than the first. "The economic motors have to keep advancing, we have to continue with the rhythm of the housing motor, the mining motor and the infrastructure motor."

Colombia's economy, mostly driven by oil and mining, has been hurt by weak overseas demand due to the global economic downturn, which has pushed commodity prices lower. A series of labor disputes in the mining sector as well as with coffee growers also hurt growth in the first three months of the year.

Cardenas last week cut the government's estimate for full-year 2013 economic growth to 4.5 percent from 4.8 percent.

"The challenge is tough, especially in the industrial sector and in construction if there isn't enough public spending during the remainder of the year; that could make it hard to meet the target of 4.5 percent," said Marisol Torres, an analyst at Helm Bank. "The execution of the government budget is key."

Some economists still reckon the government's new 2013 GDP estimate is far too optimistic and see expansion at no more than 4 percent this year.

Among sectors measured in the first quarter GDP data, construction grew 16.9 percent, mining increased 1.4 percent and financial services rose 3.4 percent. Industrial output slipped 4.1 percent.

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 also suffered because of a strong peso that makes local costs more expensive and dollar revenue weaker.

INTEREST RATES ON HOLD

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.

The first quarter GDP data makes it more likely the central bank will maintain borrowing costs steady at 3.25 percent when it meets next week. Policymakers had forecast the 2.8 percent annual economic growth rate.

Problems in Colombia's labor market added to the general economic malaise in the first quarter.

Workers at the largest coal exporter, Cerrejon, ended a 32-day strike in March, while coffee growers and truckers blocked roads and prevented produce from getting to ports.

Loading at a port controlled by U.S.-based Drummond Ltd , Colombia's second-largest coal miner, was also suspended in February after bad weather caused a spill from a barge into the water.

"What has damaged economic growth in the first quarter was the drop in output and in the mining sector from the strike at Cerrejon, the suspension in production at Drummond and less demand from Europe," said Jorge Bustamante, head of the DANE statistics agency.

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