Itaú BBA - COLOMBIA – Small trade deficit in June

Macro Latam

< Back

COLOMBIA – Small trade deficit in June

August 13, 2020

With oil prices recovering, further narrowing of the trade deficit is likely ahead.

Both exports and imports continued to decline significantly in June, but some moderation on both indicadors hint at a global demand recovery and a bottoming out of the domestic demand slump. A trade deficit of USD 443 million was recorded, narrowing from the USD 708 million last year. The trade deficit was in line with our call (Bloomberg market consensus: USD -378 million). As a result, the rolling 12-month trade deficit sits at USD 10.9 billion, similar to the USD 10.8 billion in 2019, but narrowing from the USD 11.5 billion recorded in April. At the margin, the narrowing underway is swifter, with the seasonally adjusted trade deficit at USD 8.2 billion, annualized, down from USD 9.7 billion in 1Q20 (USD 12.2 billion 4Q19). With oil prices recovering and record Covid-19 caseloads potentially hampering the process of opening up the economy, further narrowing of the trade deficit is likely ahead.


 

The first gains for non-durable goods imports since February, possibly boosted by consumption incentives (VAT-free days), aided a milder import decline. Imports (FOB) shrunk 28.5% in June (-40.8% in May), with all three divisions (consumer, intermediate and capital) still posting double-digit declines. However we note consumer goods imports fell 16.0% yoy, moderating from the 45% drop in May. The import outcome for the second quarter of the year is consistent with a significant deterioration of domestic demand. Capital goods imports shrunk 41.9%, worsening from the 5.3% and 9.6% drops in 4Q19 and 1Q20, respectively. Meanwhile, durable consumer goods imports dropped 61.5% (5.5% drop in 1Q20), indicative of weakened spending capacity as the labor market loosens rapidly, leading the 33.6% drop in consumer goods imports (+0.8% in 1Q20). Intermediate goods shrunk 27.1% in the quarter (5.6% fall in 1Q20), driven by lower global oil prices. At the margin, we estimate that the pace of the import drop accelerated to 75% qoq/saar, from an 18.0% decline recorded in 1Q20.

The export decline moderated at the close of 2Q20, despite still weak oil exports. Exports contracted 26.4% yoy in June, dragged by the 62.5% fall of oil exports (driven by falling prices; -62.3% previously). Nevertheless, the drop was milder than the 51.7% and 40.7% drop in April and May, respectively, given improved sales of coffee (31.2% vs. 1.3% drop previously), non-commodity exports (+3.3%, from -19.7%  in May), and of coal (1.4% yoy gain vs. a 48.8% decline). Exports still deteriorated in 2Q20, falling 40.6% YoY, after contracting 8.3% in 1Q20, dragged by oil exports (-67.9% vs. -23% in 1Q20) and coal exports (-37.9% vs. 5.2% in 1Q20). At the margin, exports declined 79.6% qoq/saar, a mild moderation from the 82.8% drop in May (+0.8% in 1Q20).

Going forward, low terms-of-trade and still weak global activity means Colombia’s external account imbalances would persist. However, an internal demand implosion along with a weakened currency and some oil price recovery would likely lead to some narrowing of the current account deficit to 3.3% of GDP this year, from 4.3% last year.

Miguel Ricaurte
Carolina Monzón



< Back