Colombia Growth Unexpectedly Accelerates Led by Agriculture

  • Growth led by agriculture, banking and other services
  • Oil and mining remain weak amid falling commodities prices

Colombian economic growth unexpectedly accelerated in the fourth quarter as strong office and home building helped offset weak growth in the oil and mining industries, while agriculture benefited from a weaker currency.

Gross domestic product grew 3.3 percent from a year earlier, above the 3.1 percent median forecast of 25 analysts surveyed by Bloomberg, the national statistics agency said Thursday in Bogota. GDP expanded 3.1 percent for the whole year, compared with 4.4 percent in 2014.

The stronger-than-expected growth reinforces the likelihood that policy makers will tighten monetary policy further, said Alejandro Reyes, head of research at brokerage Ultraserfinco, said from Bogota. The central bank has raised borrowing costs at its last six meetings, to 6.25 percent, as inflation accelerated to its fastest pace since 2008, even as the end of the commodities boom damped growth.

The central bank “is probably going to continue with its policy of raising rates in 25 basis point increments, but there’s still a lot of uncertainty about economic activity,” Reyes said. “This confirms our vision that they’re going to keep raising by 25 basis points until the policy rate gets to 6.75 or 7 percent.”

Agricultural output expanded 4.8 percent in the fourth quarter from a year earlier, while construction increased 4.3 percent, led by commercial real estate. Policy makers will raise the benchmark rate to 6.5 percent at the March meeting, according to all nine analysts surveyed by Bloomberg.

Growth will slow this year, dropping to 2.7 percent, the slowest pace since 2009, according to the central bank’s forecast, as interest rate increases act as a drag on the economy. Even at that reduced pace, Colombia would still be expanding faster than all other major Latin American economies apart from Peru, according to analysts surveyed by Bloomberg.

Peru’s economy grew 3.2 percent last year, while Mexico’s expanded 2.5 percent, and Brazil’s contracted 3.8 percent. Standard and Poor’s changed Colombia’s rating outlook to negative in February, saying growth prospects have deteriorated amid the tumble in oil prices.

Crude oil prices have fallen more than 60 percent over the last two years, leading to a drop in investment. Prices also fell for the nation’s coal, coffee and nickel over the same period.

Consumer prices increased 7.59 percent in February from a year earlier, as a drought made food more expensive while a weaker peso pushed up import costs. The central bank targets inflation of 3 percent, plus or minus one percentage point.

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