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Colombia’s GDP Grows at Fastest Pace in More Than Two Years

Colombia’s economy grew at the fastest pace in more than two years in the first quarter, beating all analysts’ forecasts, after a surge in government spending ahead of President Manuel Santos’ re-election. Bond fell on expectations of higher interest rates.

Gross domestic product grew 6.4 percent from the year earlier, the national statistics agency said, compared with 4.9 percent in the previous three months. Growth was faster than forecast by all 27 analysts surveyed by Bloomberg. GDP grew 2.3 percent from the previous quarter.

The jump in growth means that the central bank may step up the pace of interest rate increases to prevent the economy from overheating, said Daniel Velandia, the head analyst at Credicorp’s Colombia unit. Colombia’s growth outstripped that in Peru, where GDP expanded 4.8 percent in the first quarter, Chile, where it was 2.6 percent, and Brazil, 1.9 percent.

“Internal demand has shown a very good performance, particularly private consumption and investment,” Velandia said in a phone interview. “This is generating a lot of optimism.”

The central bank will raise its policy rate half a point to 4.25 percent tomorrow, Velandia said, changing his previous forecast of a quarter point increase. Before the GDP report was published, 27 of 28 analysts surveyed by Bloomberg had forecast a quarter point increase, while one predicted no change.

Public Spending

Yields on peso bonds due October 2015 rose 5 basis points, or 0.5 percentage point, to 5.03 percent at 9:44 a.m. in Bogota as traders increased bets on interest rate rises

In the minutes to their May board meeting, policy makers said “the gradual withdrawal of monetary stimulus” was desirable as growth takes the economy closer to its full capacity and inflation accelerates towards its 3 percent target.

Public works spending leaped 24.8 percent in the first quarter from a year earlier, while coffee output rose 14.9 percent, the statistics agency said.

“There are a lot of things going in the right direction,” said Ricardo Hausmann, a former Venezuelan planning minister who is now economics professor at Harvard University in Cambridge, Massachusetts. “In general, the world is decelerating and emerging markets are decelerating this year. Colombia is accelerating.”

Oil Industry

The oil industry, which accounts for half of Colombia’s export revenue, has helped shield the nation from the slump in metals prices which has hit Chile and Peru, Hausmann said in a June 18 phone interview.

Copper, which accounts for more than half of Chile’s exports and a quarter of Peru’s, has fallen 10 percent this year, while crude prices have risen 7 percent.

The national jobless rate fell to 9.2 percent in April, from 10.7 percent a year earlier. Annual inflation accelerated to 2.93 percent last month, after touching a six-decade low in November.

President Juan Manuel Santos, who won a second four-year term in June 15 elections, has said repeatedly that Colombia can grow at 6.5 percent or 7 percent per year if the government signs a peace deal with Marxist guerrillas and overhauls its highway network.

Government negotiators have held talks since 2012 with representatives of the Revolutionary Armed Forces of Colombia, or FARC, in Havana, in a bid to end the 50-year conflict.

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