Download 1237808286_Colombia2009_Prospects__BMI

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Colombia’s Economic Prospects in 2009 &
Beyond
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Overview
• Colombia faces a difficult 2009
• Harsh external headwinds could force the local economy into recession this year
• Once the global dust settles, the country should regain momentum quickly
• Despite structural challenges, the medium-outlook remains favourable
A Regional Outperformer
Real GDP Growth, %
•
10
Between 1999-2008, Colombia enjoyed a sustained
period of robust economic growth
Colombia
Latin America
US
8
6
•
Consistently outperforming the region, Colombia
became an EM favourite for global investors
4
2
Sound economic policy and a business-friendly
government allowed the country to capitalise on a
favourable external environment
0
-2
-4
Source: BMI, Regional Central Banks
2010f
2008e
2006
2004
2002
2000
-6
1998
•
Real GDP Growth, % Contribution
12
Net Exports
GFCF
Public Consumption
Private Consumption
Real GDP Growth
8
4
0
Source: BMI, BanRep
2008e
2007
2006
2005
2004
2003
2002
2001
-4
• The main engine of growth in recent years
has been thriving domestic demand
• Buoyant consumption, commodity price
strength and record investment levels have
combined to galvanise economic expansion
Times Are Changing
60
20
50
40
15
30
10
20
5
10
0
0
Real Retail Sales
Industrial Production
Real Auto Sales (RHS)
-5
-10
Source: BMI, DANE
Jan-09
Jan-08
Jan-07
Jan-06
-20
Jan-05
-10
Jan-04
Rising unemployment, pyramid scheme
losses and falling remittances will keep
consumer confidence subdued
25
Jan-03
•
This year, tighter lending conditions will put
a dampener on demand for ‘big-ticket’ items
Retail Sales & IP, % chg y-o-y
Jan-02
•
Since H108, however, Colombian
households have started to tighten the purse
strings
Jan-01
•
Feeling The Global Chill
•
Foreign investment levels to take a hit from risk aversion, tighter capital markets, and US &
eurozone recessions
•
FDI flows could seize up on scarcer capital resources and rise of protectionism
•
Given the importance of FDI in boom years, rapid slowdown will severely hamper economic
growth potential
Net Exports: Limited Relief
•
Net exports less of a drag on overall growth due to fall in import penetration
•
But exports to suffer also from demand destruction in key markets
•
Commodity exports (10% of GDP) to falter on weaker prices for key goods, such as petrol, coal,
nickel and coffee
The Venezuela Effect
•
Venezuela – 2nd Largest Recipient of
Colombian exports (80% of autos in 2007)
Colombian Exports To Venezuela,
% of Total
20
16
8
4
Source: BMI, DANE
2008e
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
Possible bolivar devaluation in 2009 will
hamper demand for Colombian exports
12
1995
•
BMI sees acute recessionary risks in Venezuela
in 2009/10
1994
•
Reasons For Cheer, Medium-Term
•
We are forecasting a Colombian economic contraction of 1.5% in 2009
•
However, as the global economy recovers, Colombian will be well-placed to bounce back
•
Over a 10-year time horizon, we are optimistic that real GDP growth can average an annual clip
of around 5%
Consumer Will Be King
Colombian households will lead the recovery, propelled by lower interest rates, rising incomes & return of
consumer confidence
Colombia – Policy Interest Rate & Inflation
12
Policy Rate, %
Inflation, % chg y-o-y
BMI End-09 Policy Rate Forecast Of 6.50%
10
8
6
4
2
Source: BMI, BanRep
0
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
BMI End-09 Inflation Forecast Of 3.5%
Increased Security = More Investment
Security Stats & Foreign Investment
4,000
•
President Uribe’s hardline security
policies have laid the foundations for
long-term investment
Inward FDI, US$bn (RHS)
Terrorist Attacks
Kidnappings
3,000
14
12
10
8
6
4
1,000
2
2007
2006
2008e
Source: BMI, Ministry Of Defence, BanRep
2005
2004
2003
2002
0
2001
0
2000
We do not see significant change in
economic policy after 2010 elections
1999
•
2,000
Banking On Progress
Government Domestic Debt Curve
Deepening Financial Sector
•
More opportunities in financial markets
•
Rise in mortgages, banking products,
corporate debt
1,000
980
960
940
bps
•
920
900
880
860
0
5
10
15
Year
20
25
Investment Grade In 2010?
5-Year Credit Default Swaps, bps
•
•
700
A question of ‘when’ not ‘if’
Colombia
Brazil
Chile
600
500
IG status would generate medium-term
financial investment
400
300
Transition From Frontier Market To
Major EM Player
200
100
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
0
Jan-07
•
Challenge 1: The US
Exports By Destination 2008, % Of Total
•
The US remains Colombia’s largest commercial
and financial partner
•
The ratification of the US free trade deal would
help ensure positive flows of inward investment
over the long term
•
Much depends on willingness on Washington to
implement FTA
Venezuela,
14.7
US, 38.4
Source: BMI, DOTS
Ecuador,
3.8
Peru, 2.2
Rest Of
World,
40.9
Challenge 2: Oil
•
Colombia’s proven oil reserves are
dwindling
Colombia – Oil Output, Consumption & Exports
1000
600
oil production, 000 b/d
oil consumption, 000 b/d
oil exports, 000 b/d (RHS)
900
•
The country could become a net oil
importer within a decade unless a major
new source is discovered
800
500
700
400
600
500
400
200
300
200
100
100
2018f
2016f
Source: BP Statistical Review of World Energy, June 2008
2014f
2012f
2010f
2008f
2006
0
2004
0
2002
The drive to attract IOCs will be crucial
going forward
2000
•
300
Conclusion
• 2009/2010: Economic Growth To Suffer
• Quick Recovery On Solid Fundamentals
• Medium-Term Outlook Sanguine
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