Itaú BBA - COLOMBIA – Mild trade deficit correction in September, as commodity drag persists

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COLOMBIA – Mild trade deficit correction in September, as commodity drag persists

November 12, 2020

Milder import declines suggest a gradual domestic demand recovery is underway

Trade dynamics in September point to some global demand improvement, while milder import declines suggest a gradual domestic demand recovery. A trade deficit of USD 771 million was recorded in September, narrowing only mildly from the USD 929 million deficit last year. The trade deficit fell between the USD 665 million Bloomberg market consensus and our call of a USD 845 million deficit. Although commodity exports remained weak in September, there were signs of consolidating global demand with non-commodity exports (around 50% of total exports) growing in the month. Imports declined at the mildest pace since the onset of the pandemic, but the continued double-digit decline reflects a significant negative output gap persists. Overall, the rolling 12-month trade deficit moved to USD 9.9 billion, below the cycle peak of USD 11.5 billion as of April and the USD 10.8 billion in 2019. Nevertheless, at the margin, the seasonally adjusted trade deficit widened to USD 9.4 billion annualized, up from USD 8.4 billion in 2Q20, indicating that weak export dynamics and recovering internal demand would limit the magnitude of the trade deficit correction. 

Imports (FOB) shrunk 17.3 YoY in September (-27.4% in August), with all three divisions (consumer, intermediate and capital) still posting double-digit declines. During the third quarter of the year, imports shrunk 22.1% moderating from the 34.3% drop in 2Q20. Intermediate goods shrunk 28.4% in the quarter, similar to 2Q20 as still low global oil prices and dampened domestic demand hindered its performance. Capital goods imports contracted 16.5% YoY, improving from the 41.9% fall in 2Q20. Meanwhile, consumption goods imports dropped 16.0% YoY, moderating from the 33.6% drop in 2Q20 in a likely response to the reopening of the economy during the quarter and to consumption incentives (such VAT-free sales days). At the margin, we estimate that imports accelerated to 91.3% qoq/saar, from the 73.4% decline in 2Q20.

Colombian exports showed some improvement in September, but the commodity drag continues. Exports contracted 17.5% YoY in September, improving from the 20.7% drop in August. In the third quarter of the year, exports fell 20%, moderating the decline from 40.5% in 2Q20. Oil exports shrunk 44.3% (down two-thirds in 2Q20). Meanwhile, exports excluding traditional goods (oil, coal, coffee, and ferronickel) grew 3.2% YoY, (-15.3% drop in 2Q20), reflecting improved global demand. At the margin, exports increased 102.9% qoq/saar, recovering from 79.3% decline in 2Q20, as oil and non-traditional good sales accelerate.  

We expect a gradual narrowing of the current account deficit, from 4.3% last year to 3.2% of GDP in 2020, but risks tilt to a milder correction. Weak terms-of-trade mean Colombia’s external imbalances would persist. Still, weakened internal demand and COP depreciation would foster some narrowing of the deficit.

Miguel Ricaurte
Carolina Monzón

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