Colombian June industrial output falls; trade weighs

Colombia’s industrial production fell more-than-expected in June, as
trade restrictions imposed by Venezuela took a toll on auto output and
a weak economy weighed on domestic demand.

Industrial production, excluding coffee processing, contracted 6.6%
in June from the same month in 2008, led by lower steel and vehicle
production, the National Statistics Department, known as DANE, said
Wednesday.

Auto production fell from the previous year, partly as a result of
Venezuela lowering its import quota for Colombian vehicles.

Venezuelan President Hugo Chavez granted permits for Colombian auto
producers to sell 5,000 public transportation vehicles and 5,000 heavy
cargo trucks, down substantially from 22,500 in 2008 and 45,000 in
2007.

But Chavez said Venezuela will buy those 10,000 vehicles from Argentina instead.

“Not a single vehicle produced in Colombia has been exported to
Venezuela so far this year,” Colombia’s trade minister, Luis Guillermo
Plata, recently told Dow Jones Newswires.

Tensions between Colombia and Venezuela rose further in July when
Colombia said it will allow U.S. forces to coordinate anti-drug
operations from seven Colombian military bases. The agreement irked
Chavez, who suggested that U.S. forces would use the Colombian bases
not to combat drug trafficking but to target neighboring Venezuela.

Carlos Ramos, an economist at local brokerage Interbolsa said
June’s drop in industrial output is stronger than the 4.98% he
expected, as Colombian auto makers have sharply reduced their
production and cut hundreds of jobs because Venezuela hasn’t bought
cars from Colombia.

Alberto Ramos, an economist at the New York-based investment bank
Goldman Sachs, said the looming trade restrictions imposed by
Venezuela, Colombia’s second most important export market, could delay
the recovery of the Colombian economy.

Colombia is a key supplier of food, textiles and other manufactured
products to Venezuela. Despite the diplomatic spats, Colombia’s exports
to Venezuela rose to $6.09 billion in 2008 from $5.21 billion in 2007.
But exports of textile products to Venezuela were already down 22% in
the first five months of this year, according to DANE.

Javier Diaz, the executive president of the Colombian Exporters’
Association, said the country’s exports to Venezuela may fall 10% this
year from 2008.

The drop won’t be dramatic for Colombia, “as Venezuela will find it
difficult to replace food imports from Colombia,” Diaz recently said.

Camilo Perez, head of research at the country’s second largest
bank, Banco de Bogota, said weakness in the domestic economy, which
contracted 1% in the fourth quarter of last year and 0.6% in the first
quarter of this year, also contributed to June’s lower industrial
output.

Perez expects industrial production will fall 4% in 2009, with output posting negative figures until October or November.

DANE also reported Wednesday that retail sales contracted 4.5% year-on-year in June, and 5.2% in the first half of the year.

Colombians are buying just the basics because unemployment is
rising, and the majority fear they could be the next ones to lose their
jobs, Ramos at Interbolsa said. (Dow Jones)

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