Colombia Buoyed by U.S. Outperforming as China Sales Slow

By Matthew Bristow  

Exports of flowers to the U.S. and fuels to India are buffering Colombia from a slowdown in Chinese growth that is hurting the Andean country’s neighbors.
Colombia’s $380 billion economy expanded 4.3 percent in the second quarter from a year earlier, more than twice the pace of neighbors Chile and Peru, whose economies have been undercut by falling metals prices amid cooling demand from China. Brazil’s economy contracted over the same period.
China is the largest export market for Chile, Peru and Brazil, while Colombia ships more than twice as much to the U.S. as it does to the world’s second-biggest economy. That means that the recovery in the U.S. should benefit Colombia more than other countries in
the region, said Mario Castro, a strategist at Nomura Holdings Inc. in New York.
“The country whose economic outlook is on the way up is the U.S.,” Castro said in a Sept. 17 phone interview from New York. “The U.S. recovery will help Colombia’s industrial and agricultural exports.”
U.S. gross domestic product rose at a 4.2 percent annualized rate in the second quarter, more than analysts forecast, as auto sales neared an eight-year high and corporate profits climbed the most in almost four years. While China is targeting 7.5 percent growth this year, that would be the slowest in more than two decades. Chinese imports unexpectedly dropped 2.4 percent in August from a year earlier, signaling subdued domestic demand.

Cut Flowers

Bolstered by a free-trade agreement, Colombia provides the U.S. with oil, coal, coffee, bananas, nickel and textiles, as well as with about 65 percent of its imported flowers by value. That has helped companies such as Bogota-based leather manufacturer Articur to clear customs faster, and boost sales of its belts and handbags in the U.S.
“Before the free-trade agreement, we never saw the U.S. as a viable option, but rather as a problem,” said Alejandro Mesa, Articur’s sales director. “There’s a lot of potential to keep growing.”
Colombian exports to the U.S. totaled $8.2 billion this year through July, while sales to China were $3.8 billion, according to Colombia’s statistics agency. While exports to the U.S. were down $3.4 billion from a year earlier, $3.1 billion of that was due to fuel exports, which have been hit by increased U.S. use of hydraulic fracturing, or fracking.
Colombia’s mix of exports also differentiates it from its South American neighbors and has insulated it from China’s slowdown. Copper, which accounts for more than half of Chile’s exports and a quarter of Peru’s, has fallen 18 percent over the last two years while crude prices, which account for half of Colombia’s exports, have fallen 2.3 percent.

‘Different Dynamic’

“If you have minerals, that immediately makes you more dependent on China, which is where demand is coming from,” Finance Minister Mauricio Cardenas said in a Sept. 16 interview in New York. “If you depend on oil it’s a different dynamic, you depend on the global economy as a whole, which is the case of Colombia.”
Beyond trade ties, Colombian growth is benefiting from an effective fiscal and monetary stimulus program that allowed the economy to rebound from a slowdown at the end of 2012, Castro said.
In April last year, President Juan Manuel Santos announced a 5 trillion-peso ($2.5 billion) stimulus plan, which included subsidized home loans. At the same time, the central bank cut its policy rate two percentage points between July 2012 and March 2013. The bank has since raised rates five times to withdraw stimulus as economic growth gathers momentum.
While growth picks up and central bank Governor Jose Dario Uribe says GDP is expanding at its potential, Colombia’s neighbors are cutting borrowing costs to spark growth. Chile’s economy grew 1.9 percent in the second quarter from a year earlier, its slowest pace since 2009, amid a contraction in mining investment. Peru’s economy expanded 1.7 percent over the same period, while Brazil’s contracted 0.9 percent.
Colombia is “doing well,” said Alberto Ramos, a Latin America analyst at Goldman Sachs Group Inc. in New York. “It’s probably the only economy that’s going to grow around 5 percent this year. And it’s the only economy where we revised growth up.”