March 24, 2011 / 9:29 PM / 9 years ago

Colombia economy at 3-year high, rates eyed

BOGOTA (Reuters) - Colombia’s economy accelerated by 4.6 percent in the fourth quarter of 2010, the government said on Thursday, sparking expectations the central bank may raise interest rates more quickly than previously thought.

The growth reported by the country’s DANE statistics agency compared with an expansion of 3 percent in the last quarter of 2009 and topped analysts’ forecasts for growth of 3.89 percent for the last quarter of 2010.

Colombia, like Latin American peers Brazil and Chile, is enjoying strong growth following the global financial crisis — prompting a range of responses from central banks in the region to prevent their economies from overheating.

For all of 2010, the economy grew 4.3 percent — the strongest annual growth since 2007, before the global economic crisis bit into expansion.

The government also revised upward its growth figures for 2009 and 2008, raising 2009 growth to 1.5 percent from a previous figure of 0.8 percent, and 2008 growth to 3.5 percent from 2.7 percent previously.

Colombia’s better economic prospects, reflected in both the 2010 growth reading and upward revisions of 2009 and 2008, changed analysts’ expectations of the central bank’s path on interest rates.

“What stands out is the acceleration of growth which indicates that it’s likely that the output gap is closing more quickly than anticipated,” said Camilo Perez, director of economic research at Banco de Bogota.

“It’s more likely that there are more inflation pressures on the demand side and this could lead to more adjustments in interest rates more rapidly than expected,” he said.

The monetary authority has raised its rate by 50 basis points since February, to 3.5 percent currently, after keeping it at historic lows to boost economic growth.

Following Thursday’s data, benchmark July 2020 TES bond yields rose to 8.305 percent from Wednesday’s close of 8.219 percent, on market expectations the bank might adjust how much it raises its rate.

LOOKING AHEAD

Colombia’s economy grew 1.9 percent in the fourth quarter of 2010 compared with the third quarter of last year, pushed by strong growth in the construction sector, the DANE said.

Mining grew 11.1 percent in 2010 compared with 11.4 percent in 2009, driven by high oil and gas prices. Manufacturing rose 4.9 percent compared with a fall of 3.9 percent in 2009, thanks primarily to transport equipment.

The restaurants, hotels and trade sector grew 6 percent last year versus a fall of 0.3 percent in 2009. But construction growth slowed to 1.8 percent compared with 8.4 percent growth a year earlier.

Analysts say construction growth could pick up this year as Colombia spends to recover from heavy rains that battered the nation last year.

The director of national planning, Hernando Jose Gomez, told reporters on Thursday he expects the economy to expand 5 percent or more this year. The finance minister has projected growth between 5 percent and 6 percent.

“For the purposes of estimating the fiscal plan, we had 4 percent for 2010 and 4.5 percent for 2011, since (growth) in 2010 was 4.3 percent, we increased the calculation of what will be the tax receipts and now we expect 5 percent,” Gomez said.

Colombia has enjoyed a boom in investment, especially in the oil and mining sectors, as security has improved. Foreign direct investment has grown five-fold since a 2002 U.S.-backed crackdown on leftist guerrillas.

“The real activity picture implicit in today’s real GDP report suggests that the output gap is likely significantly smaller/tighter than originally estimated, and also that at the margin the economy was quite vibrant at end 2010,” Alberto Ramos of Goldman Sachs said in a note.

“Real GDP growth in 2011 could easily exceed the central bank’s 4.5 percent forecast, with a print between 5 percent and 6 percent increasingly possible. In all, today’s figures add support the central bank’s decision ... to preemptively reduce the level of monetary accommodation, and also to continue throughout 2011 to normalize monetary conditions.”

Additional reporting by Jack Kimball; writing by Patrick Markey; Editing by Dan Grebler

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