FOUR CONSECUTIVE QUARTERS OF NEGATIVE GROWTH; WILL THERE BE

UNCLAS BOGOTA 004088 SIPDIS E.O. 12958: N/A TAGS: ECON EINT PREL PGOV CO SUBJECT: FOUR CONSECUTIVE QUARTERS OF NEGATIVE GROWTH; WILL THERE BE A FIFTH? REF: BOGOTA 3313; BOGOTA 3878; BOGOTA 3359 ¶1. Summary. Colombia's economic growth for the third quarter remained negative, at -0.2 percent. This is the fourth straight quarter of negative growth, but it reveals a northward trend that is expected to yield positive growth for the fourth quarter as well as for 2010. The GOC admits that third quarter results are below what was previously estimated and attributes this lackluster performance to a poor coffee harvest, the slow pace of the global recovery, and Venezuela's actions to block imports from Colombia. Overall, Colombia's recession has been mild in comparison to others in the region, but its recovery will not be as quick as others either. End Summary. GDP Trending Upward, But No Thanks to Venezuela -------------- -- ¶2. Colombia reported negative 0.2 percent growth for the third quarter, extending Colombia's negative streak to four consecutive quarters. It began in the fourth quarter of 2008, for which the GOC reported negative 1.0 percent growth, which was followed by negative 0.5 and 0.3 percent growth, respectively. However, the trend is clear, and both GOC officials and economic analysts predict positive growth for the fourth quarter and a positive 2.5 percent growth for 2010. ¶3. Mauricio Reina, analyst at Fedesarollo (a local economic think-tank),highlighted that "third quarter numbers show that the GDP is worse than what we had hoped for, and that the recovery has been slow." Esteban Piedrahita, Director of GOC's National Planning office, said that the recovery has been less robust than projected due to factors such as Venezuela and a poor coffee harvest. ¶4. Chavez' actions toward Colombia have had dramatic consequences on Colombia's exports (reftel A). His orders to block or substitute Colombian imports have decreased Colombian exports to Venezuela by 48 percent in August, 50 percent in September, 70 percent in October, and 75 percent in November (compared to 2008 figures for those months). Minister of Finance Ivan Zuluaga notes that, in 2010, Colombia's economic growth will be inferior to that of Brazil, Chile, and Peru, due to Colombia's heavy economic dependency on the U.S. and Venezuela. Four Industries Prevent a Larger Drop in GDP -------------- ¶5. The four main industries that have helped Colombia avoid a more serious fall in GDP are construction, mining, finance, and oil and gas. Mass amounts of countercyclical spending in the form of public works have helped boost Colombia's economy and just recently, Colombia awarded its largest transportation infrastructure project in its history (septel). The mining sector continues to post gains and is led by the coal industry, which is posting record exports for 2009. The financial sector also is doing well as it finances many of the construction projects and maintains its conservative lending practices, which had buffered the banking sector from the financial meltdown of 2008. Colombia's oil and gas industry continues to increase production and achieved 700,000 barrels per day in early October -- the highest in over a decade (reftel B). Comment: Diversify -------------- ¶6. In response to changing markets, Colombia has made inroads to diversify its export market, to Asia in particular (reftel C). But it has been slow to do so, primarily because of the long-standing economic relationship Colombia has had with Venezuela, the perceived difficulties of entering a new market, and because past rows between the two countries have ended without severe economic consequences. Although Venezuela's actions will continue into the following year, Colombia's GDP looks to recover in 2010 with an expected 2.5 percent growth rate due to low central bank rates, increased foreign direct investment, and an improvement in the global and regional economic environment. BROWNFIELD