Colombia's Economy Grows Below Expectations

The Colombian economy expanded 3.6% in the third quarter, disappointing market expectations, as a decline in the construction sector dragged down economic activity.

The number, released Thursday by the country's national statistics institute, known as DANE, was lower than analysts' forecasts that had pointed to a 4.4% expansion in the quarter against a year earlier.

Though the pace of growth was the lowest since the fourth quarter of last year, the Colombian economy has emerged from a slowdown in 2009, when GDP expanded a tepid 0.8%.

Economic activity, however, could suffer in the coming months because devastating rains lashing the country have destroyed key roads and damaged food crops.

Some analysts said the impact of the downpours on the economy will likely be felt in the coming months.

Finance Minister Juan Carlos Echeverry, who had in the past projected the economy could grow as much as 5% this year, said the economy is likely to expand 4.5% in fourth quarter.

Mining was the main driver of growth, expanding 10.2% last quarter.

Transport, communication and storage also performed well, rising 7.6%.

The manufacturing sector, which the central bank recently said has been underperforming, expanded by a modest 3.4%.

Leading decliners was construction, with a 10.5% drop in activity, while agriculture activity contracted a mild 0.9%.

Last week the central bank reduced its economic growth estimate for 2010, forecasting the economy for the year will grow between 4% and 4.5%, a notch below its previous 4.5% projection.

The heavy rains could have a "transitory effect" on the economy in the last quarter of this year and the first three months of 2011, Serfinco SA, a local brokerage firm, said in a research note.

The government's infrastructure spending could help the construction sector recover in the second half of 2011, the firm said.

The central bank expects the economy to expand 4.5% next year, but has warned the economic activity in sectors such as electricity, industry and transportation have shown signs of moderation.

Domestic demand and household consumption are the main factors driving economic growth, according to the central bank's Dec. 3 minutes.

The Colombian economy this year has been dogged by the appreciation of the peso, with exporters complaining that their products are less competitive abroad.

In recent weeks the peso has retreated as a result of central bank dollar purchases in the spot market.