By Helen Murphy and Luis Jaime Acosta
BOGOTA (Reuters) - Colombia's flagging industrial sector will start to recover this year as a series of government incentives filter into business plans and start to have an impact on factory output, the trade minister said on Friday.
Colombia's economy has been hit hard by weak manufacturing, with nine of the last 12 months registering declines in output. A global economic slowdown has trimmed overseas appetite for local industrial exports and slowed growth in the economy.
The government has struggled to lift its industrial sector - which makes up about 12 percent of the $360 billion economy - implementing a series of measures it hopes will encourage investment and job creation in Latin America's fifth-biggest economy.
"There should be a recovery by the end of this year," Trade Minister Santiago Rojas told Reuters, highlighting cuts in import duties on capital goods, a reduction in labour costs and cheap long-term credit.
"The latest business surveys show that there is more optimism, industrial confidence is improving and we should have an upturn. I am confident that the measures should begin to work."
In the first half of 2013 the industrial sector contracted 1.6 percent against the same period a year ago within overall economic growth of 3.4 percent.
The economy grew 4 percent in 2012, well below the 6.6 percent expansion in 2011. The government expects growth of 4.5 percent this year.
Rojas, a 46-year-old lawyer who took office in October after President Juan Manuel Santos shuffled his cabinet, said the ministry's focus would be on "conquering international markets" using existing free trade agreements to maximize industrial development.
"Our bet is to be more competitive," said Rojas of the oil, coal and coffee-driven economy.
While Colombia has 10 free trade agreements, including with the United States, South Korea and Europe, the current administration has no plans to initiate new trade accords.
Rojas said he is confident trade between Colombia and Venezuela should recover to levels seen before President Hugo Chavez - who died of cancer in March - cut bilateral commerce in mid-2010 after a diplomatic spat with former President Alvaro Uribe.
Although trade between the neighbouring countries has slowly improved since Santos took office, reaching about $2.7 billion in 2012, it remains well below highs of $7 billion a decade ago or so ago, Rojas said.
"Venezuela is a natural market for us; we are neighbours, we have complementary economies ... we are confident that at some point we will have bilateral trade as strong as it was before. But it's important to understand we have different economic models that we have to respect."
Colombia is considering trading goods to Venezuela in exchange for bonds in state oil company PDVSA. The deal would assist Colombian exporters in selling their goods and at the same time help Venezuela which is struggling with a shortage of dollars to pay for foodstuffs like beef.
Details of the plan have been sketchy, but Rojas said any deals would be strictly between private enterprises and not involve the Colombian government in any way.
"Colombia's government is not buying PDVSA bonds as a source of payment; it's a deal between exporters and importers ... Colombia is simply supporting the process," he said.
(Editing by Eric Walsh)
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