Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Colombia Economic Outlook Fourth quarter 2015 5 A larger current account deficit with a very gradual correction over the medium term A slow adjustment of the economy’s net exports and demand is delaying correction of the current account As was to be expected, the first effect of the slump in oil prices was a mounting current account deficit, because the slowdown of domestic demand took longer and was more orderly than the sudden plunge in commodity prices. On top of this, the boost for other exports that should arise from the greater currency depreciation has still not materialised. And it could be delayed for even longer. The initial effect attributable to the change in external relative prices is import substitution involving a switch to local production, ahead of the stimulus to sales abroad of domestically produced items. The balance of trade thus saw an abrupt shift and ran into deficit at the end of 2014, after several straight years of positive contributions to the current account. In 2016, there will be various factors that work in favour of a lower trade deficit. The oil price will move onto a path of recovery and will average USD59/bbl next year, a level around 9% above the comparable figure in 2015. Industrial exports will perform better, largely due to the new oil derivatives produced at the Cartagena refinery, as will those of the agricultural sector, while there will be a heftier adjustment of final consumption, which will have a dampening effect on import growth. Furthermore, in 2015 and 2016 several automatic stabilisers will have partly mitigated the pressure on the current account from oil. First, the lower profits to be had by foreign oil and mining companies have led to a smaller outflow of dividends sent abroad from Colombia. This drop will equal the fall observed in foreign direct investment in 2015, but will be sharper in 2016, as the recovery of other tradable sectors and major infrastructure projects will involve the inflow of stable funding from abroad that will offset the persistence of a low level of investment in mining and oil activities and leave foreign investment stable over 2015 and 2016. Second, the lower levels of exports and imports have meant that less has been paid to foreign companies for foreign trade services. At the same time, the higher growth in developed countries, where a substantial number of Colombian emigrants are employed, has given rise to an increase in the wiring home of remittances. These will climb from representing 21% of the current account deficit in 2014 to 27% of the total deficit in 2016. Overall, the anticipated current account deficit as a percentage of GDP is 6.4% in 2015 and 5.5% in 2016. The chief correction will come from the factor income account, which includes dividends sent abroad, since whereas in 2014 this account contributed 65% of the current account deficit, this will be 37% in 2015 and 43% in 2016. On the other hand, the balance of trade will be the account that contributes most to the deficit, the figure moving from 23% in 2014 to 72% in 2015 and 55% in 2016. No decumulation of foreign exchange reserves is foreseen in 2015 (if anything only marginal, owing to investment portfolio valuation and volatility options). Capital flows (both portfolio and direct) were bigger than expected at the beginning of the year, which could relate to international investors having a favourable opinion of Colombia’s domestic conditions. This has been confirmed by foreign issuance by the central government, which has totalled USD3.5bn, and the funding from abroad for certain private companies, which are elements that together have also helped to finance the current account. That said, we cannot rule out decumulation of reserves in 2016, which, if this occurred, would reach USD1.5bn (0.5% of GDP) at most, as low portfolio flows are expected on account of the normalisation of Colombia Economic Outlook Fourth quarter 2015 monetary conditions in the United States. Moreover, foreign direct investment ought not to increase relative to the figure that this year will show (around USD12bn) and the options for foreign issuance open to private sector interests and the government will be more limited, given the higher interest rates abroad. Even with this potential reduction in foreign exchange reserves, these will be at entirely healthy levels when set against the dollar value of GDP (16% of GDP) and total imports (enough to cover over 10 months of average imports). Furthermore, Colombia still has the IMF’s flexible credit line in its arsenal, which guarantees the country liquidity in the event of unexpected difficulties as regards international credit and capital flows. Figure 5.1 Figure 5.2 Current account and financing (% of GDP) 7,0 6,0 5,0 5,5 5,2 4,4 4,0 4,1 4,3 4,1 4,1 1,1 5,5 4,8 5 3,7 4 5,0 4,0 1,5 6 3,0 3,4 3 3,0 2,0 6,0 3,3 3,1 2,9 4,3 Components of the current account (% of GDP) 7,0 6,4 2 1,8 0,5 1,0 0,3 3,0 1 2,0 0 0,0 2,4 2,3 0,7 -1 1,0 -1,0 -1,2 -1,2 -2 -2,0 2011 2012 2013 Current Account Deficit 2014 FDI 2015 -1,4 0,0 2016 Acumulation RIN Source: Banco de la República and BBVA Research Trade Deficit 2014 Factor Income 2015 2016 -1,6 -1,6 current transfers remittances 2017 Source: Banco de la República and BBVA Research Colombia Economic Outlook Fourth quarter 2015 DISCLAIMER This document has been prepared by BBVA Research Department, it is provided for information purposes only and expresses data, opinions or estimations regarding the date of issue of the report, prepared by BBVA or obtained from or based on sources we consider to be reliable, and have not been independently verified by BBVA. Therefore, BBVA offers no warranty, either express or implicit, regarding its accuracy, integrity or correctness. Estimations this document may contain have been undertaken according to generally accepted methodologies and should be considered as forecasts or projections. Results obtained in the past, either positive or negative, are no guarantee of future performance. This document and its contents are subject to changes without prior notice depending on variables such as the economic context or market fluctuations. BBVA is not responsible for updating these contents or for giving notice of such changes. BBVA accepts no liability for any loss, direct or indirect, that may result from the use of this document or its contents. This document and its contents do not constitute an offer, invitation or solicitation to purchase, divest or enter into any interest in financial assets or instruments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. In regard to investment in financial assets related to economic variables this document may cover, readers should be aware that under no circumstances should they base their investment decisions in the information contained in this document. Those persons or entities offering investment products to these potential investors are legally required to provide the information needed for them to take an appropriate investment decision. The content of this document is protected by intellectual property laws. It is forbidden its reproduction, transformation, distribution, public communication, making available, extraction, reuse, forwarding or use of any nature by any means or process, except in cases where it is legally permitted or expressly authorized by BBVA. Colombia Economic Outlook Fourth quarter 2015 This report has been produced by the Colombia Unit Chief Economist for Colombia Juana Téllez [email protected] Fabián García [email protected] José Vicente Romero [email protected] Mauricio Hernández [email protected] María Claudia Llanes [email protected] Emerging Markets Area Financial Systems and Regulation Area Santiago Fernández de Lis [email protected] Global Areas Interns: Sebastian León [email protected] BBVA Research Group Chief Economist Jorge Sicilia Serrano Developed Economies Area Rafael Doménech [email protected] Spain Miguel Cardoso [email protected] Europe Miguel Jiménez [email protected] US Nathaniel Karp [email protected] Cross-Country Emerging Markets Analysis Alvaro Ortiz [email protected] Financial Systems Ana Rubio [email protected] Economic Scenarios Julián Cubero [email protected] Financial Inclusion David Tuesta [email protected] Financial Scenarios Sonsoles Castillo [email protected] Mexico Carlos Serrano [email protected] Regulation and Public Policy María Abascal [email protected] Innovation & Processes Oscar de las Peñas [email protected] Turkey Alvaro Ortiz [email protected] Digital Regulation Álvaro Martín [email protected] Asia Le Xia [email protected] LATAM Coordination Juan Manuel Ruiz [email protected] Argentina Gloria Sorensen [email protected] Chile Jorge Selaive [email protected] Colombia Juana Téllez [email protected] Peru Hugo Perea [email protected] Venezuela Julio Pineda [email protected] Contact details: BBVA Research Colombia Carrera 9 No 72-21 Piso 10 Bogotá, Colombia Tel: 3471600 ext 11448 E-mail: [email protected] www.bbvaresearch.com 4/4 www.bbvaresearch.com