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Colombia Outlook 2Q17
Latam Economic Outlook 2Q17
Main messages
1.
World growth continues apace, accompanied by a certain
clarification regarding US policy. Overall. global risk remains a
concern.
2.
The Colombian economy will grow slightly faster than it
did in 2016. Growth is expected to increase from 2% in 2016
to 2.1% in 2017 and 2.7% in 2018.
3.
2016 saw a healthy and significant adjustment to the
current account. The current account deficit as a percentage
of 2016 GDP stood at 4.4%, around 2% less than in 2015. We
expect it will close around 3.3% on average in the next two
years.
4.
Inflation shakes off supply-side shocks and ratifies its
sharp fall. After two years of exchange rate pressure and
twelve months of the worst of “El Niño” phenomena on record,
inflation consolidated its downward trend to stand at 4.7% at
the close of the first quarter of 2017.
5.
The Banco de la República has embarked on a downward
rate cycle. With the drop in inflation and the external balance,
the Bank will be able to reduce interest rates to 5.5% in 2017.
Latam Economic Outlook 2Q17
GLOBAL
Stronger growth,
but still with significant risks
Colombia
Latam Economic Outlook 2Q17
Positive global momentum
Main trends continue …
… and central scenarios become more likely
Recovery of industrial production
and trade still underway
A strong stimulus to US economy
looks less likely…
Low volatility in financial markets
…but so does scenarios with
strong protectionism
Headline inflation continues to rise
in advanced economies, but core
inflation remains stable
Central banks in developed
countries lean towards policy
normalization
4
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
Global growth continues to increase at the beginning of 2017
Global GDP growth
Confidence indicators remain
very high, although hard data
still do not capture all the
improvement in sentiment
Forecasts based on BBVA-GAIN model (%, qoq)
1,2
1,0
China and developed
economies show signs of strong
growth. However, other
emerging economies show
mixed signals
0,8
0,6
GDP Growth
Average
Source: BBVA Research
Jun-17
Mar-17
Dec-16
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
0,4
IC 20%
IC 40%
IC 60%
5
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
Financial stress remains low
BBVA Financial Stress Index
Volatility has decreased
despite uncertainty about
economic policies
(normalized)
2,0
Monetary and fiscal stimulus
mask some underlying
weakness
1,0
Europe has been the
exception, with some increase
in sovereign spreads, linked to
elections in France and the
political outlook for the region
as a whole
0,0
-1,0
-2,0
Apr-14
Oct-14
Latam
Source: BBVA Research
Apr-15
Oct-15
Asia
Apr-16
Oct-16
Apr-17
Developed
6
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
Central banks on the way to policy normalization
Official interest rates in the US (Fed) and Eurozone (ECB)
(pp)
2,5
2,0
1,5
ECB
End of QE
ECB
QE tapering
1,0
0,5
Source: BBVA Research, FED and ECB
FED
Fed continues to increase interest rates, though is
still cautious about the economic outlook.
Oct-18
Jul-18
Apr-18
Jan-18
Oct-17
Jul-17
Apr-17
Jan-17
Oct-16
Jul-16
Apr-16
Jan-16
0,0
ECB
The ECB is to start discussing its exit strategy, but
very cautiously.
7
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
Global growth revised up
US
EURO AREA
2017
2.3
2018
2.4
Increased LATIN AMERICA
Unchanged
Revised down
2017
1.1
2017
1.7
CHINA
2018
1.7
2017
6.3
2018
5.8
2018
1.8
WORLD
Source: BBVA Research. Latin America includes: Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela
2017
2018
3.3
3.4
8
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
China: renewed recovery with old engines
We revised up our growth
forecasts for 2017-18, due to
incoming data and a fiscal impulse.
Gradual deceleration underway
China: GDP growth
(%)
8
7,3
6,9
7
6,7
But medium-term risks are still
significant:
6,3
6
5,8
• Rebalancing of growth towards
services and consumption has stalled
5
• Policy missteps could lead to a
disorderly deleveraging
4
3
2014
2015
Forecast April 2017
Source: BBVA Research and CEIC
2016
2017
2018
Forecast February 2017
9
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
US: diminished prospects of a pro-growth fiscal impulse
Growth increases in 2017 given
pick up in investment. However,
private consumption is expected
to slow down
US: GDP growth
(%)
3,0
2,6
2,5
2,4
2,4
2,3
Risks stemming from economic
policy continue despite a softer
tone in the last months
2,0
1,6
1,5
1,0
0,5
0,0
2014
2015
Forecast April 2017
Source: BBVA Research and BEA
2016
2017
2018
Forecast February 2017
10
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
We maintain our view of gradual convergence of commodity
prices to their long-run equilibrium levels
SOYBEANS
COPPER
(USD/B)
(USD/mT)
(USD/lb)
120
600
3,3
100
550
80
500
60
450
40
400
20
350
0
300
Forecast February 2017
Forecast April 2017
3,1
2,9
2,7
2,5
2,3
2,1
1,9
1,7
Forecast February 2017
Forecast April 2017
1Q2014
3Q2014
1Q2015
3Q2015
1Q2016
3Q2016
1Q2017
3Q2017
1Q2018
3Q2018
1Q2019
3Q2019
1Q2020
3Q2020
1,5
1Q2014
3Q2014
1Q2015
3Q2015
1Q2016
3Q2016
1Q2017
3Q2017
1Q2018
3Q2018
1Q2019
3Q2019
1Q2020
3Q2020
1Q2014
3Q2014
1Q2015
3Q2015
1Q2016
3Q2016
1Q2017
3Q2017
1Q2018
3Q2018
1Q2019
3Q2019
1Q2020
3Q2020
BRENT OIL
Forecast February 2017
Forecast April 2017
Source: BBVA Research and Bloomberg
Oil prices will continue to get support from OPEC production
agreement, as well as increase in demand. Copper prices will
benefit from stronger demand and also supply disruptions.
No significant changes in our view for long-term commodity
prices. Forecasts mostly unchanged for oil and soybeans
relative to February.
11
Latam Economic
Economic Outlook
Colombia
Outlook 2Q17
2Q17
Global risks most relevant for Latin America are related to US
policies and rebalancing in China
1
2
Lingering uncertainty about economic
policies to be implemented in US, especially
trade policies
Policy stimulus in China to support investment
could delay and slow down reforms to reduce
structural imbalances
3
4
Elections in France and Italy in (the unlikely)
case that Eurosceptic platforms prevail
Risks stemming from monetary policy
normalization, especially in the US
12
Situación Colombia 2T17
Colombia
Sowing the future
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
2017 growth will be slightly higher than that seen in 2016
We expect improved investment
performance in 2017, due to
public works and private
industry, agriculture and mining
investment programmes.
GDP growth Colombia
(% variation YoY)
4
(f)
3.1
3
Available leading indicators
show a weak start to the year.
However, we expect to see
recovery in the second half of
this year
2.1
2.0
2
1
dic-17
sep-17
jun-17
mar-17
dic-16
sep-16
jun-16
mar-16
dic-15
sep-15
jun-15
mar-15
0
Source: DANE and BBVA Research
14
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Investment in 2017 will cease to shrink, while consumer
spending maintains its pace
GDP, investment and consumer spending
(% variation YoY)
5
3,8
4
3
2,0
2,1
2,1
2,4
2,7
Lower inflation and interest rates
and greater relative confidence
will see higher consumer
spending from the second half of
2017 and especially in 2018.
2,6
2,0
2
The investment rate will rise
again between 2017 and 2018,
as a result of adjusting at a
faster rate than aggregate GDP.
1
0
-1
-2
-3
-3,6
-4
2016
2017(p)
GDP
Private Consumption
Source: DANE and BBVA Research
2018(p)
Investment
15
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
The economic slowdown is affecting the labour market with a
lag
Unemployment rate in 13 cities
(%, end of period)
12
10.8
11
10.5
9.8
10
9.8
9.3
9
Higher unemployment rate is
expected going forward on the
prolonged deceleration. Though
not at the levels of previous
deceleration cycles as 2009 of
13%
8
The consumer spending dynamic
will be affected by the
deterioration in the labour
market, especially in 2017.
7
6
5
2014
2015
Source: DANE and BBVA Research
2016
2017(f)
2018(f)
16
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Agriculture and construction will lead growth in 2017
GDP growth by sector
(% variation YoY)
Agriculture will benefit from
better weather in 2017
Mid-level housing, 4G and
improved local governments
budget execution will
continue to bolster the
construction sector.
Sector
Agriculture
0.5
3.5
2.7
Construction
4.1
3.4
4.4
Financial and Corporate Services
5.0
3.2
4.1
Government and Social Services
2.2
1.9
2.6
Utilities
0.1
1.7
2.6
Industry
3.0
1.6
2.3
-6.5
1.6
-2.2
1.8
1.5
3.2
-0.1
1.4
2.9
2.0
2.1
2.7
Oil and Mining
Industry will have a regular
year due to weak demand
Retail, Restaurants and Hotel Industry
Transportation
Mining will continue its weak
growth
2016 2017(f) 2018(f)
Total
Source: DANE and BBVA Research
17
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Economic risk in Colombia has fallen
The 2% adjustment in 2016 of the
current account will favour long term
growth. The considerable current
account deficit caused pressure to
maintain monetary policy rates high,
limited the government's room for
manoeuvre and created a sensation
of vulnerability in the private sector.
Fiscal and current account deficit
(% of GDP)
0
-1
-2
-2.4
-3
-2.9
-3.0
-3.2
-3.6 -3.6
-4
-4.0
Tax reform will improve the
sustainability of public finances.
Between 2014 and 2016, the
government made an important
adjustment in expenditure.
-4.4
-5
-5.1
-6
-6.4
-7
2014
2015
Current Account Deficit
2016
2017(f)
2018(f)
Central Government Deficit
Source: Banco de la República, DANE, the Ministry of Finance and BBVA
Research
18
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
In this context, inflation has slowed down significantly. We
expect that at the end of 2017 the annual rate will be 4.1%
Headline, core and food inflation
(% variation YoY)
16
(f)
14
12
10
8
6
4
2
Headline
Core
dic-18
oct-18
ago-18
jun-18
abr-18
feb-18
dic-17
oct-17
ago-17
jun-17
abr-17
feb-17
dic-16
oct-16
ago-16
jun-16
abr-16
feb-16
dic-15
oct-15
ago-15
jun-15
abr-15
feb-15
dic-14
0
Food
Source: DANE and BBVA Research
Foodstuff prices will continue to fall in 2017 due to greater
agricultural supply. Exchange rate stability will help to keep
the price of imported goods down.
We expect to see inflation end 2017 and 2018 at a annual rate
of 4.1% and 3.4%, respectively.
19
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
The Banco de la República has the path clear to reduce rates
End-of-period monetary policy rate
(%)
8
7.50
7
5.75
6
5.50
5.00
5
4.50
The reduction of the external
imbalance risk and inflation
allow the Bank to begin a
downward rate cycle. We
estimate that in 2017 the policy
rate will reach 5.5%, then take a
brief break before starting 2018
with rate reductions to 5%.
4
In the decision balance of the
Bank’s Board, once inflation
expectations approach the
target of 3,0%, economic activity
will play a more relevant role .
3
2
1
0
2014
2015
2016
2017(p)
2018(p)
Source: Banco de la República and BBVA Research
20
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Given the Colombian economy's lower level of external
vulnerability, the exchange rate will stay relatively stable
Exchange rate
With the correction of the current account
deficit, external vulnerability will decrease,
as will the economy's external financing
needs. This suggests less pressure on the
exchange rate.
(Pesos per dollar)
3400
(f)
3300
3200
2016 average: 3054 (11.4%)
2017 average: 2972 (-2.7%)
2018 average: 2995 (0.8%)
Within a positive context for oil prices and
external stability, the peso should appreciate
in 2017 compared to 2016, stabilizing slightly
below 3,000 pesos to the dollar.
3100
3000
2900
2016 eop: 3010 (-4.7%)
2017 eop: 3015 (0.5%)
2018 eop: 2958 (-1.9%)
2800
2700
Source: Banco de la República and BBVA Research
oct-18
jul-18
abr-18
ene-18
oct-17
jul-17
abr-17
ene-17
oct-16
jul-16
abr-16
ene-16
2600
It should not be forgotten that the US
Federal Reserve will make two adjustments
to interest rates before year end, according
to our forecasts. This will put upward
pressure on the exchange rate in the second
half of the year.
21
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
The main risk to economic growth comes from internal affairs
1
2
Additional delays to the public and private
investment decisions which may have an
impact on short- and medium-term growth
Imbalances in the Chinese economy may cause
a hard landing to its growth with important
repercussions to commodity prices
3
4
Risk associated with the normalisation of
monetary policy, especially in the US, which
may affect capital flows, and as a result, the
exchange rate and the space that BanRep has
to reduce rates
Uncertainties that are still associated with
measures passed in the USA, especially in a
commercial context, affecting export
performance
22
Situación Colombia 2T17
Main messages
1.
World growth continues apace, accompanied by a certain
clarification regarding US policy. Overall. global risk remains a
concern.
2.
The Colombian economy will grow slightly faster than it
did in 2016. Growth is expected to increase from 2% in 2016
to 2.1% in 2017 and 2.7% in 2018.
3.
2016 saw a healthy and significant adjustment to the
current account. The current account deficit as a percentage
of 2016 GDP stood at 4.4%, around 2% less than in 2015. We
expect it will close around 3.3% on average in the next two
years.
4.
Inflation shakes off supply-side shocks and ratifies its
sharp fall. After two years of exchange rate pressure and
twelve months of the worst of “El Niño” phenomena on record,
inflation consolidated its downward trend to stand at 4.7% at
the close of the first quarter of 2017.
5.
The Banco de la República has embarked on a downward
rate cycle. With the drop in inflation and the external balance,
the Bank will be able to reduce interest rates to 5.5% in 2017.
Situación Colombia 2T17
ANNEX
Situación
2T17
Colombia
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Summary of Baseline Scenario
2013
2014
2015
2016
2017(f)
2018(f)
4.9
4.4
3.1
2.0
2.1
2.7
Private consumption (YoY, %)
3.4
4.3
3.2
2.1
2.0
2.6
Public consumption (YoY, %)
9.2
4.7
4.0
1.8
1.8
2.1
Fixed investment (YoY, %)
6.8
9.8
1.8
-3.6
2.4
3.8
Inflation (% YoY, eop)
1.9
3.7
6.8
5.7
4.1
3.4
Inflation (% YoY, average)
2.0
2.9
5.0
7.5
4.3
3.3
Exchange rate (eop)
1.927
2.392
3.149
3.001
3.015
2.958
Devaluation (%, eop)
9.0
24.1
31.6
-4.7
0.1
-1.4
Exchange rate (average)
1.869
2.001
2.742
3.054
2.972
2.994
Devaluation (%, average)
3.9
7.1
37.0
11.4
-2.7
0.8
BanRep interest rate (%, eop)
3.25
4.50
5.75
5.75
5.50
5.00
Deposit interest rate (%, eop)
4.1
4.3
5.2
6.9
5.7
5.3
Fiscal Balance (% GDP)
-2.3
-2.4
-3.0
-4.0
-3.6
-2.9
Current Account Balance (% GDP)
Unemployment rate (%, eop)
-3.2
-5.2
-6.5
-4.4
-3.6
-3.2
9.7
9.3
9.8
9.8
10.5
10.8
GDP (YoY, %)
25
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Chief Economist
Juana Téllez
[email protected]
+57 347 16 00
Fabián García
[email protected]
+57 347 16 00
Mauricio Hernández
[email protected]
+57 347 16 00
María Claudia Llanes
[email protected]
+57 347 16 00
Alejandro Reyes
[email protected]
+57 347 16 00
Natalia Roa
[email protected]
+57 347 16 00
Intern
BBVA-Research
Jorge Sicilia Serrano
Macroeconomic Analysis
Rafael Doménech
[email protected]
Global Macroeconomic Scenarios
Miguel Jiménez
[email protected]
Global Financial Markets
Sonsoles Castillo
[email protected]
Global Modelling &
Long Term Analysisl
Julián Cubero
[email protected]
Innovation & Processes
Oscar de las Peñas
[email protected]
Financial Systems & Regulation
Santiago Fernández de Lis
[email protected]
Spain & Portugal
Miguel Cardoso
[email protected]
Countries Coordination
Olga Cerqueira
[email protected]
Digital Regulation
Álvaro Martín
[email protected]
United States of America
Nathaniel Karp
[email protected]
Argentina
Gloria Sorensen
[email protected]
Mexico
Carlos Serrano
[email protected]
Chile
Jorge Selaive
[email protected]
Regulation
María Abascal
[email protected]
Turkey, China & Geopolitics
Álvaro Ortiz
Financial Systems
Ana Rubio
[email protected]
[email protected]
Turquía
Álvaro Ortiz
[email protected]
Colombia
Juana Téllez
[email protected]
Financial Inclusion
David Tuesta
[email protected]
Asia
Le Xia
[email protected]
South America
Juan Manuel Ruiz
[email protected]
Peru
Hugo Perea
[email protected]
Venezuela
Julio Pineda
[email protected]
26
2T17
ColombiaSituación
EconomicColombia
Outlook 2Q17
Legal Notice
This document, prepared by the Department of BBVA Research, is informative in nature and contains data, opinions or estimates relating to the date of the same, they are
from its own research or based on sources believed to be reliable, and have not been independently verified by BBVA. BBVA therefore makes no guarantee, express or
implied, as to the document's accuracy, completeness or correctness.
The estimates that this document contains have been carried out according to generally accepted methodologies and should be taken as such, i.e. as estimates or
projections. The historical evolution of economic variables (positive or negative) does not guarantee their equivalent evolution in the future.
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