Itaú BBA - COLOMBIA – Slow narrowing of trade balance deficit

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COLOMBIA – Slow narrowing of trade balance deficit

October 18, 2017

As the trade deficit is narrowing, albeit too gradually, external imbalances will remain a source of concern.

The trade balance in August recorded a USD 930 million deficit, in line with our forecast (USD 928 million deficit) and slightly wider than the Bloomberg market consensus estimate. The trade balance was broadly stable from the USD 1.0 billion deficit recorded one year ago. The resulting trade balance deficit in the quarter that ended in August was USD 2.3 billion, stable from the deficit recorded in 2Q17. The rolling 12-month trade deficit continued to inch down, as it came in at USD 9.2 billion (USD 9.7 billion as of June and USD 11.5 billion in 2016). The recent narrowing from June is due to a recovery in the energy balance (led by coal), while the non-energy balance deficit is broadly stable. At the margin, the annualized trade balance deficit (using our own seasonal adjustment) showed a more convincing correction to USD 9.4 billion in the quarter ending in August, from the USD 11.3 billion deficit in 2Q17, but still larger than the USD 9.1 billion in 1Q17 (which makes us cautious of the expected pace of the correction ahead).



 
 


As the low base effect passes, exports grew a mild 1.5% year-over-year in August (38.3% previously), but continued to decline at the margin. Coffee and oil lifted exports in the month, with the latter increasing 10.1% (1.2% in July) as price gains endured while the decline in quantities moderated. The volatile coal exports was the main drag to exports in the month. In the quarter ending in August, total exports grew 11.5% (10.5% in 2Q17 and 32.4% in 1Q17), boosted by coffee and coal exports. Additionally, exports that exclude Colombia’s traditional goods (coal, coffee, oil and ferronickel) improved to 19.5% (9.2% in 2Q17 and 8.8% in 1Q17). Meanwhile, oil exports dropped 0.5% in the quarter (+6.8% in 2Q17 and +47.7% in 1Q17). At the margin, exports fell 16.7% qoq/saar, a moderation from the 25.8% fall in 2Q17, but below the 20.9% expansion in 1Q17. 
 
Imports (FOB) also decelerated, expanding a mere 0.4% year-over-year in August, after recording a 12.2% growth rate in July. The deceleration responded to intermediate goods, which contracted 7.8% (+12.5% in July) dragged by the gasoline component (-27%). Meanwhile, capital goods imports rose 11.5% (+12.6% in July) lifted by transportation equipment (+51.6%). In the quarter that ended in August, imports expanded +4.1% (+5.2% in 2Q17 and +6.9% in 1Q17), boosted by capital goods (+8.9%), especially for the agriculture sector (+35.6%). At the same time, consumer goods imports gained 3.3% (-3.1% in 2Q17) as the durable component expanded 6.5%. Meanwhile, intermediate goods imports moderated to 1.5% year-over-year (+5.3% in 2Q17) pulled down by gasoline (-6.7%) and agricultural goods (-6.8%). At the margin, imports declined 20.4% qoq/saar in the quarter that ended in August (-4.3% in 2Q17), dragged down by the intermediate and capital goods.
 
As the trade deficit is narrowing, albeit too gradually, external imbalances will remain a source of concern. We expect a current-account deficit of 3.7% of GDP this year (4.3% in 2016).


 

Miguel Ricaurte

Carolina Monzón



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