Amid downbeat activity, the current account deficit in 4Q23 was a moderate 2.3% of GDP. During the final quarter of 2023, a deficit of USD 2.3 billion was recorded (2.3% of GDP), narrowing USD 2.5 billion from 4Q22 and slightly below our USD 2.5 billion call. A narrowing of the trade and services deficit, along with higher transfers and a lower income deficit led to the significant narrowing of the CAD in 4Q23. For 2023, the current account deficit fell to 2.7% of GDP (USD 9.7 billion) from 3.5% of GDP (USD 12.2 billion) in 3Q23 and 6.2% of GDP (USD 21.4 billion) in 2022. At the margin, our own seasonal adjustment shows the annualized deficit sits at 2.1% of GDP in 4Q23, similar to 3Q23 (5.0% in 4Q22). The narrowing of the current account deficit, the lowest annual CAD since 2010, reduces Colombia’s external imbalances and provides room for the Central Bank to accelerate the easing cycle to 50bps in the next meeting (March 22), as activity falters further, albeit with supply factors keeping inflation elevated.
The USD 2.5 billion narrowing of the CAD in 4Q23 from last year was mainly due to a lower trade and services deficit, along with a lower income deficit. Exports contracted 5.7% yoy during 4Q23 (16.0% drop in 3Q23), dragged mainly by weak coal exports, while imports fell at a double-digit rate (10.3% drop; -24.9% in 3Q23), dragged mainly by capital goods (particularly related to manufacturing and construction). Overall, the goods trade deficit narrowed USD 0.9 billion from 4Q22 to USD 1.9 billion. Meanwhile, the services deficit narrowed by USD 0.8 billion to reach USD 0.3 billion, while transfers reached USD 3.4 billion. Additionally, the income deficit narrowed by USD 0.6 billion from 4Q22 to USD 3.6 billion, as weak activity dynamics likely affect the profits of companies with foreign direct investment in Colombia.
Net foreign portfolio investment improved significantly in 2023, while financing of the CAD remains favorable. Direct investment into Colombia came in at USD 3.9 billion in 4Q23, USD 0.1 above one year earlier. Net direct investment reached USD 3.3 billion, achieving a 144% coverage of the CAD in 4Q23. For the full year, net direct investment increased to USD 16.2 billion from 13.8 in 2022 (167% coverage of CAD, 65% in 2022; 1,8% of GDP).
We expect the current account deficit to widen to a still contained 3.1% of GDP by the end of this year, nevertheless downside risks to domestic demand may result in a smaller deficit.
Andrés Pérez M.
Vittorio Peretti
Carolina Monzón
Juan Robayo