Trade-stifling diplomatic tensions with Venezuela could help push Colombia’s economy into a contraction this year as the cross-border spat suppresses manufacturing and exacerbates fallout from the world crisis.
July industrial output fell in Colombia due to slow demand for exports caused by the global slowdown. Also taking a toll is the clampdown on commerce by No.2 trade partner Venezuela in protest at Colombia’s deepening military ties with Washington.
Colombia’s economy shrank in the last three months of 2008 and in the first quarter of this year. The government says it expects an improvement in the second half and that growth for full 2009 will probably be be nil to slightly positive.
“The issue with Venezuela could delay Colombia’s recovery,” said Alberto Ramos, a Goldman Sachs analyst who predicts more or less flat growth for Colombia’s economy this year.
Industrial production slumped 6.5 percent in July versus July 2008. The data was in line with expectations and showed improvement from earlier this year when output tumbled 7.5 percent in the first quarter and by 14.5 percent in April.
The conflict with Venezuela remains a big source of uncertainty. Leftist President Hugo Chavez says Colombia’s plan to allow U.S. anti-narcotics and anti-guerrilla operations to be carried out from its territory poses a threat to stability.
Venezuela has blocked purchases of Colombia cars, food and other goods while it looks for alternative providers.
“But everyone knows that Venezuela has to trade with Colombia for its own economic good,” Ramos said. “So we expect Chavez to take a more pragmatic approach as time goes by.”
In 2008 Colombia exported more than $6 billion in products to Venezuela, equal to about 3.0 percent of Colombia’s gross domestic product. Venezuela sells few products to Colombia.
Tensions with Chavez and other socialist leaders in the region have helped define Colombian President Alvaro Uribe as Washington’s main ally in South America.
Popular for his U.S.-backed crackdown on Marxist rebels, Uribe may stand for a third term next year if his supporters clinch a constitutional amendment to allow him to run.
Bertrand Delgado, senior economist at RGE Monitor in New York, predicts an improvement in Colombian industrial output by the end of the year.
“But because of the situation with Venezuela, August and September will continue to be not that great,” said Delgado, who expects the economy will contract by 0.6 percent in 2009.
Banco de Bogota Chief Economist Camilo Perez is more optimistic about Colombia’s growth prospects, although he worries that world-wide unemployment will continue to weigh on global growth and suppress demand for the country’s goods.
He sees 0.5 percent growth for Colombia’s economy in 2009.
“We expect better industrial production and other economic numbers starting in August,” Perez said. “But if there is an external shock, such as a sharp worsening in relations with Venezuela, that 0.5 percent growth forecast will disappear.” (Reuters)