Colombian Car, Home Purchases Signal Stronger First-Qtr Growth

May 28 (<a href=quote.bloomberg.com>Bloomberg) -- Colombia's economy probably grew at its fastest pace in two years in the first quarter, as low interest rates and growing confidence in the government's security and economic policies boosted demand, especially for houses and cars.

The $82 billion economy likely grew 2.78 percent in the quarter from a year earlier, compared with 2 percent in the fourth quarter, according to a median of eight economists surveyed by Bloomberg.

``People aren't afraid of taking out loans anymore because interest rates are stable,'' said Oscar Ivan Rodriguez, a car salesman at Chevrolet dealership Continautos SA, who says his sales doubled from a year ago.

Interest rates near historic lows have helped spur construction and purchases of big-ticket items such as homes and cars. Falling unemployment in turn has boosted retail sales, increasing orders for manufactured goods and helping to spur economic growth.

The national statistics agency may announce preliminary first- quarter growth figures today.

A senior planning department official told a local Internet news service, Primerapagina.com, that the economy grew 3.3 percent in the first quarter, even as statistics agency officials said the figures were still being calculated.

The benchmark interest rate -- the average of 90-day deposit rates on which most rates are pegged -- averaged 7.7 percent in the first quarter, from 11.1 percent a year earlier.

``I sold three properties in February compared with only one a year ago as people are buying again because of the low rates and government incentives,'' said Enrique Mendoza, a real estate salesman at Ospina & Cia Ltda real-estate agency.

Prices, Subsidies

Along with the low interest rates, construction is also getting a boost from prices near decade-old levels, a shortage of available units, government subsidies for low-cost housing and tax breaks for high-income home purchases.

Building approvals rose 34 percent in February to 872,601 square meters (1,047,121 square yards) from a year ago, while approvals for the 12 months through February gained 20 percent from the same year- earlier period. Construction has been rising since 2000, even as it hasn't recovered to 1995 levels.

Retail car sales rose 34 percent in March from a year earlier, as low interest rates and promotions offered by dealers boosted purchases. Car loan rates are about 21 percent, down from about 30 percent a year ago.

Continautos' Rodriguez says he sold about 30 vehicles in the first quarter, double what he sold last year, thanks to the low rates and promotions his company was offering. Of those, nine were sport utility vehicles, compared with none a year ago, as theft of the four- wheel drive vehicles dropped off as the government stepped up its war against leftist rebels.

`Highly Prized'

Nobody wanted to buy them when they were being stolen and taken to the former demilitarized zone, as they were highly prized'' by the rebels, said Rodriguez. Now the security measures in place are giving people confidence to travel by road again and investment in general is picking up.''

The army's February 2002 invasion of a former demilitarized zone used for peace talks was the prelude to a general government crackdown on the Revolutionary Armed Forces of Colombia's four-decade insurgency that has led to a decline in kidnappings, increased security on highways and greater investor confidence in the nine- month-old administration of President Alvaro Uribe.

Another sign of restored confidence is the strength of the peso, which is unchanged for the year, compared with a 21 percent decline last year. The 10 percent coupon global bond due in January 2012 rose in February and March and reached a historic high of 114.8 on May 12, with its yield down at 7.6 percent.

Industrial Production

Industrial output, excluding coffee processing, rose 5 percent in February from the year-earlier month, an eighth consecutive month of gains. Output of building materials has helped lead the rise in industrial output. Industrial sales rose 5.7 percent.

``The strong use of installed capacity in factories and the high energy usage growth of 4.3 percent in April from a year ago, indicate that industry should do well,'' said Felipe Gomez, head of research at Suvalor brokerage in Medellin.

Exports to Venezuela, the No. 2 trading partner, have been slashed two-thirds due to a strike and currency controls in the neighboring country. Still, Colombia has countered that effect by increasing exports to the U.S. and other markets.

Alberto Bernal, who covers Colombia for IDEAglobal.com, said construction should gain 6.5 percent, manufacturing 6 percent, retail 2.75 percent and financial services 4 percent in the quarter from a year earlier.

The following chart provides a breakdown by analyst and research firm of forecasts for GDP growth for the first quarter compared with the same period a year earlier.

Firm Forecast

Alianza Valores 2.75% IDEAglobal.com 2.8% Acciones y Valores SA 2.8% Corfinsura SA 2.29% Suvalor SA 2.29% Santander Investment 3.4% BBVA Banco Ganadero SA 2.6% Citibank Colombia SA 3.0%

Bloomberg News survey estimate (median): 2.78%

 (Source: Bloomberg News; figures for the calculation were

provided by the National Statistics Department and the National Planning Department)

Last Updated: May 28, 2003 08:23 EDT