Itaú BBA - COLOMBIA – Trade deficit widens in 2018

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COLOMBIA – Trade deficit widens in 2018

February 14, 2019

The trade deficit widened to USD7.1 billion in 2018 (from USD6.1billion in 2017), ending two years of corrections.

A twelfth consecutive trade deficit was registered in December, leading to a widening of the trade deficit last year (ending two years of correction). Imports continued to recover in the final quarter of 2018, growing at a double-digit rate. Meanwhile, low oil prices hampered exports and poses a risk to the external accounts. The trade deficit in December was USD 587 million (Bloomberg market consensus: USD 668 million; Itaú: USD 800 million), a reversal of the USD 517 million surplus recorded one year earlier. As a result, the trade deficit for 2018 was USD 7.1 billion, up from the USD 6.1 billion in 2017. The correction of the trade deficit reverted during the back end of 2018, as falling oil prices led to a diminished energy trade surplus, while the non-energy deficit widened. At the margin, the annualized trade deficit (using our seasonal adjustment) increased from USD 5.3 billion in 3Q18 to USD 9.9 billion in 4Q18, as export growth slowed.

Strong import growth of durable consumption goods and capital goods imports suggest internal demand is recovering. Total imports (FOB) grew 15.1% yoy in December (12.3% previously), resulting in growth of 19.7% in 4Q18 (11.4% in 3Q18). Consumer goods imports rose 16.1% yoy in 4Q18 (10.4% in 3Q18), led by the 25% rise in durable goods. Meanwhile, imports of construction materials slowed, but remained elevated and favorable for investment growth (8.8% in 4Q18 vs. 18.9% in 3Q18). Capital goods imports rose 25.2% (7.4%) boosted by purchases of transportation equipment. In 2018, imports recovered with growth of 11.3%, up from 2.6% in 2017, led by intermediate goods imports (for the industrial sector). At the margin, we estimate that imports expanded 28.7% qoq/saar, a considerable acceleration from the -17.2% recorded in 3Q18, boosted by all categories.

The fall of global oil prices late last year triggered the first contraction in oil exports since July 2017. Total exports decreased 14.6% year-over-year in the final month of 2018 (+7.8% previously), dragged down by the drop in coal exports (-39.8%), while oil exports shrunk 10.1% (+34.1% in November) as prices fell around 10% and volumes were broadly stable. In 4Q18, exports grew a mild 1.5% year over year, compared to 12.0% in 3Q18 (19.2% 2Q18) as oil exports moderated (to 14.7% from 51.3% in 3Q18). Meanwhile, coal (-15.4% vs.-13.7% in 3Q18) and coffee exports (-3.0% vs. -18.8% in 3Q18) are still declining. Overall, export growth in 2018 moderated from 19.2% in 2017 to 10.4%, despite oil exports rising 27.4% (22% in 2017). Coal was the principal drag in the year (+0.8% vs. 59.3% in 2017). At the margin total exports fell 13.6% qoq/saar in 4Q18 (+2.2% in 3Q18 and +11.3% in 2Q18), led by slowing oil exports.

Low oil prices and a slowing global economy are hampering the outlook for an external-account correction. We see the 2018 and 2019 current-account deficit coming in at 3.6% and 3.5% of GDP, respectively, up from the 3.3% level in 2017. The central bank has raised concern on the expected rise of the deficit. Previously, an elevated current account deficit prevented the board from moving to an expansionary monetary position despite activity weakness.

Miguel Ricaurte
Vittorio Peretti

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