Colombia’s Economy Grows at Slowest Pace Since 2009 Crisis

  • GDP expanded 2.5% in first quarter from the year earlier
  • Government bond yields drop as traders cut bets on rate rises

Colombia’s economy grew at the slowest pace since 2009 in the first three months of the year as consumer confidence slumped and prices fell for the nation’s oil, coal and coffee. The weaker-than-expected result caused bond yields to drop as traders pared bets on further interest rate increases.

Gross domestic product expanded 2.5 percent from the year earlier, compared with a revised 3.4 percent in the previous three months, the national statistics agency said Friday in Bogota. The figure was below the 2.8 percent median forecast of 31 analysts surveyed by Bloomberg. From the previous quarter, GDP grew 0.2 percent.

Nine interest rate increases since September have damped demand as the central bank attempts to curb the fastest inflation in 15 years without causing growth to crash. Over the past week, three members of the bank’s committee have signaled that the phase of monetary policy tightening may now be nearing its end. The economy will grow 2.5 percent this year, the bank forecast in April.

“The GDP report surprised some,” said Daniel Escobar, head analyst at Global Securities brokerage in Bogota. “Traders are betting we might not see anymore rate hikes from the central bank.”

Colombia’s local peso bonds due in 2018 extended a rally after the report, with yields dropping 0.08 percentage point to 7.04 percent. At their May board meeting, policy makers limited the interest rate increase to a quarter point, as evidence grows that the economy is cooling faster than expected.

Escobar expects the central bank to raise the policy rate a quarter point to 7.5 percent this month and keep it at that level for the remainder of the year.

Regional Woes

“Domestic demand is weakening in line with forecasts,” said Daniel Velandia, the head analyst at Credicorp Capital’s Colombia unit. “With these data and if inflation isn’t very high, we could see a pause in monetary policy this month.”

The slowdown was led by oil and mining, which contracted 4.6 percent, while agriculture expanded 0.7 percent, despite the boost farmers have got from the weaker peso. The fastest growing sectors were industry, which expanded 5.3 percent, and construction, which gained 5.2 percent.

Still, among Latin America’s major economies, Colombia’s economy is performing well. While Peru’s economy grew 4.4 percent in the first quarter from a year earlier, Mexico expanded 2.6 percent, Chile grew 2 percent and Brazil contracted 5.4 percent.

S&P Global Ratings changed Colombia’s rating outlook to negative this year, saying growth prospects have deteriorated amid the tumble in oil prices, while Moody’s Investors Service affirmed the country’s Baa2 rating and stable outlook.

Consumer-price inflation accelerated to 15-year high of 8.2 percent last month, according to analysts surveyed by Bloomberg, as a weaker peso pushed up import costs and the most severe drought in decades increased food prices. The central bank targets inflation of 3 percent, plus or minus one percentage point. The statistics agency will publish its May inflation report on Saturday.

The price of crude, Colombia’s biggest export, has fallen by more than half over the past two years, causing investment to fall and forcing the government to rein in spending to hit its fiscal targets.

Before it's here, it's on the Bloomberg Terminal.