Colombia ETF Forecast for Growth, But Challenges Loom

Feb.18.10 | About: Global X (GXG)

After a year of traversing the treacherous roads that emerged from the financial downturn, Colombia’s economy and its related ETF may finally be on track to experience a smoother ride.

“Expansive monetary policy” is spurring Colombia’s economic growth and the Central Bank has decided to keep its benchmark interest rate unchanged at 3.5% as a result, writes Helen Murphy for Bloomberg. Colombia’s quarterly GDP levels are recuperating, demand is “on the mend” and the financial system is “stable.”

The decline in exports was in part because of the international crisis, diminished coffee production and the drop in demand from Venezuela. The country is boycotting Colombian goods because of an agreement that allows greater U.S. military presence in Colombia. However, Central Bank Chief Jose Dario Uribe says Chile, Peru and Central America are helping to replace the void in export sales.

Uribe expects that the economy will “probably” grow by 2% to 3% for 2010. Finance Minister Oscar Ivan Zuluaga projects an economic expansion of 2.5% this year. Inflation will likely increase in the first half of the year, says Uribe, but come drop down in August. The Central Bank estimates that inflation will be between its target range of 2% to 4% this year.

Colombian Central Bank board members Juan Jose Echavarria and Carlos Gustavo Cano, who mostly disagree on monetary policy strategies, believe that the country requires the current historic low rates to help the economy recover, reports Inti Landauro for The Wall Street Journal. Market players generally expect benchmark rates will stay unchanged till around May and end at an average 4.57% by year’s end.

December’s urban unemployment rate rose from 10.9% to 12.3% year-over-year, notes Inti Landauro for The Wall Street Journal. Observers of Colombia’s economy usually consider the urban rates, as opposed to the national rate, to be a better gauge of the job market’s health. The joblessness rate on the national level was up from 10.6% to 11.3% in December year-over-year.

The National Business Association of Colombia (ANDI) said that the country’s industrial production fell 5.9% and sales diminished 3.3% last year, reports Hannah Stone for Colombia Reports. Industries that were hardest hit and experienced decline in sales and production levels of over 20% include glass, vehicles, auto parts and rubber productions. Colombia’s national statistics agency DANE reported that the industrial sector is getting better, pointing to the industrial production, excluding coffee, growth of 2% year-over-year in November.

  • Global X/InterBolsa FTSE Colombia 20 ETF (NYSEArca: GXG)


Max Chen contributed to this article.