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Cablegate: Four Consecutive Quarters of Negative Growth; Will There Be

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #4088/01 3571751
ZNR UUUUU ZZH
R 231750Z DEC 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1791
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHSG/AMEMBASSY SANTIAGO
RUEHZP/AMEMBASSY PANAMA

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

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