Colombia Economic Slowdown Deepens as Construction Stalls

Updated on
  • Growth in 2Q was weakest since aftermath of financial crisis
  • Central bank has raised interest rates most in the Americas

Colombia’s economic growth rate slowed more than expected to the weakest since the aftermath of the global financial crisis, as the slump in oil and mining deepened and the construction sector cooled.

Gross domestic product expanded 2 percent from the same period a year earlier, the statistics agency said Monday, the slowest pace since 2009. The median forecast of 31 analysts surveyed by Bloomberg was for growth of 2.3 percent. The economy expanded 0.2 percent from the previous quarter.

The central bank has raised interest rates 3.25 percentage points since September, in the longest series of monthly increases since it started targeting inflation in 1999, as it grapples with the fastest inflation in 16 years. Policy makers are trying to get inflation back within its target range by the end of 2017, but are wary of triggering an “abrupt” slowdown in the economy.

The weaker second-quarter growth makes another interest rate increase at the bank’s August policy meeting Wednesday more unlikely, said Andres Langebaek, the head analyst at Banco Davivienda.

“It would be worth the bank’s while to pause, to see whether this trend accentuates, or whether it recovers in the second part of the year” Langebaek said in a phone interview.

Oil and mining contracted 7.1 percent from a year earlier, while agriculture contracted 0.1 percent. Growth in construction, the sector that had replaced oil and mining as the biggest driver of growth in recent years, slowed to 1 percent, from 5.2 percent in the previous quarter.

Finance Minister Mauricio Cardenas said this month that the current rate of 7.75 percent is “starting to be damaging,” and has urged his colleagues on the bank’s board to leave the rate unchanged this month. Colombia targets inflation of 3 percent, plus or minus one percentage point.

The central bank lowered its GDP growth estimate for 2016 to 2.3 percent from 2.5 percent last month.

Central bank co-director Adolfo Meisel said this month that the slowdown in consumption is necessary, and that the economy is adjusting in an orderly manner to lower oil prices. His colleague on the board Cesar Vallejo said that the economy may now be operating below its full capacity.

Mexico’s economy grew 2.5 percent in the second quarter, while Peru’s expanded 3.7 percent, and Chile’s 1.5 percent.

— With assistance by Rafael Gayol, and Christine Jenkins Tanzi

(Adds analyst comment in fourth paragraph.)
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