Colombia Expands at Fastest Pace Since 2.007 in Third Quarter

Colombia’s economy expanded at the fastest pace since 2.007 in the third quarter, buffering the country against Europe’s debt crisis and weak global growth.

The 7.7 percent surge in third quarter growth exceeded all 30 estimates, whose median forecast was for 6 percent annual growth. 

Gross domestic product expanded 1.7 percent from the previous quarter, the national statistics agency said today.

Colombia’s economy is gaining momentum, while growth cools in other investment-grade rated countries like Brazil and Chile, as a result of a surge in spending on infrastructure and record foreign direct investment. 

Colombia’s GDP is expected to expand 4.5 percent next year, more than the 3.7 percent forecast for the rest of Latin America in a report yesterday by the United Nations’ economic unit for the region.

“Colombia’s economy has handled the European crisis much better” than it did the 2.008 financial crisis, said Juana Tellez, chief economist at Bogotá based BBVA Colombia SA, in a Dec. 20 presentation. “

Colombia would continue to grow well even if the world economy faces more complications ahead.”

Colombia’s peso bonds fell, sending yields higher, after the report. 

The yield on the nation’s 9.25 percent bonds due in May 2.024 rose six basis points to 6.18 percent at 11:31 a.m. in Bogotá, according to the stock exchange.

Construction

Growth in the third quarter was helped by a break in heavy rains and deadly flooding, clearing the way for the government to complete work on several road, energy and mining projects.

Construction and mining activity each jumped more than 18 percent in the July-September period from a year ago, today’s GDP report showed. 

The third quarter growth matched the pace of growth seen in the first quarter of 2.007. GDP expanded a revised 5.1 percent in the second quarter, the statistics agency said.

The strong growth has helped lower unemployment, which at 9 percent is still the highest among major economies in Latin America. 

It’s also shielded the economy against a third-quarter drop in commodity prices as the benchmark West Texas intermediate crude fell 17 percent and the S&P GSCI Index of 24 raw materials fell 12 percent. 

Oil, coal and coffee account for about two-thirds of Colombia’s exports by revenue.

“This is magnificent news for employment and the prosperity of all Colombians,” President Juan Manuel Santos said in a message posted on his Twitter account after today’s report.

Still, faster growth may reignite concern about inflation, forcing investors to increase bets that the central bank will raise borrowing costs “sooner rather than later,” said David Moreno, a fixed-income analyst at Bogotá based brokerage Cia. de Profesionales de Bolsa SA.

Rate Outlook

Policy makers in November raised the overnight lending rate a quarter percentage point to 4.75 percent, citing the need to bolster the central bank’s credibility after “strong” growth drove up inflation expectations, according to minutes of the meeting. Banco de la Republica left the rate unchanged in the Dec. 16 meeting. 

Moreno expects policy makers to begin raising the key rate in the second half of 2.012.

Annual inflation slowed more than expected in November, to 3.96 percent, after breaching the upper limit of the bank’s target range in October for the first time since 2.009. 

Colombia targets inflation of 2 percent to 4 percent.

“Investment in the mining sector has helped a lot, consumer confidence is at high levels and inflation is relatively under control,” said Julian Marquez, an analyst at Bogotá based brokerage Interbolsa SA.

Record FDI

Inroads against guerrillas that increase security have drawn investors to Colombia including billionaires Eike Batista and Mexico’s Carlos Slim. 

Slim’s Grupo Carso SAB bought a stake this year in Geoprocesados SA’s Tabasco Oil Co., which owns rights to explore in eastern Colombia near fields owned by Ecopetrol.

Foreign direct investment by oil and mining may reach a record $15 billion this year, Tellez said.

The flows have helped stabilize the peso, which has weakened just 1.3 percent this year compared with more than 10 percent declines for currencies in Chile, Mexico and Brazil as investors avoid riskier assets amid Europe’s deepening debt crisis.

Third-quarter construction of public works projects rose 23 percent from a year ago, led by building of mining infrastructure, hydroelectric projects, and roads, according to Colombia’s statistics agency.

Some economic data point to a cooling in the economy, calming investors’ fears of overheating, said Marquez.

Retail sales rose 6.1 percent in October from a year earlier, slower than the 7.8 percent forecast. 

Industrial output grew 5 percent from the year before, down from 5.2 percent a month earlier.