Itaú BBA - COLOMBIA – Despite weak imports, trade correction remained sluggish in August

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COLOMBIA – Despite weak imports, trade correction remained sluggish in August

October 16, 2020

Low terms-of-trade and still weak global activity mean Colombia’s external imbalances would persist.

Downbeat domestic demand led to imports shrinking by more than a fourth in August, yet a weak commodity export performance hinders a swifter external imbalance correction. A trade deficit of USD 828 million was recorded in August, narrowing from the USD 1.4 billion deficit last year. The trade deficit was in line with the Bloomberg market consensus and narrower than our USD 950 million deficit expectation. As a result, the rolling 12-month trade deficit sits at USD 10.1 billion, below the cycle peak of USD 11.5 billion as of April and the USD 10.8 billion in 2019. At the margin, the trade deficit is narrower at USD 7.7 billion, annualized, but the pace of the correction has moderated (USD 8.1 billion in 2Q20 and USD 9.6 billion in 1Q20).



In line with gradual activity recovery, imports are improving at the margin, but annual declines remain significant. Imports (FOB) shrunk 27.4% YoY in August, deeper than the 20.8% fall in July, but still an improvement from the 40.8% contraction peak during May. Partly behind the deeper annual decline compared to July was the contraction of non-durable goods imports (12.3% YoY), after two months of annual gains. Even after excluding volatile fuel and transportation components, imports shrunk by more than a fifth, reflecting the overall internal demand weaknesses. During the quarter ending in August, imports fell 25.5% YoY, milder than the 34.3% drop in 2Q20. At the margin, we estimate imports recovered to 18% qoq/saar, from a 74% decline recorded in 2Q20, as consumer and capital imports post some improvement.

 
Exports remained weak in August, still hampered by commodity sales. Exports shrunk 21.3% YoY in August (similar to the fall in July). Oil exports dropped 38.9% yoy (-50.9% in July) while coal exports contracted 25.9% (-34.1% in July). The drop was mainly dented by lower prices compared to last year, although oil export volumes are also shrinking. In the quarter ending in August, exports shrunk 23%, milder than the 40.5% drop in 2Q20. At the margin, exports grew 79.4% qoq/saar (-78.8% in 2Q20).


We expect a gradual narrowing of the current account deficit from 4.3% last year to 3.3% of GDP in 2020. Low terms-of-trade and still weak global activity mean Colombia’s external imbalances would persist. Still, weakened internal demand and COP depreciation would aid some correction of the current account deficit.

Miguel Ricaurte
Carolina Monzón


 

 

 



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