Itaú BBA - COLOMBIA – Weak commodity exports contain trade deficit correction in July

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COLOMBIA – Weak commodity exports contain trade deficit correction in July

September 17, 2020

Recovering, but still low terms-of-trade and dampened global activity mean Colombia’s external account imbalances would persist ahead

Trade dynamics in July point to some global demand recovery, while slowly moderating import declines suggest the worst of the shock is behind the Colombian economy. A trade deficit of USD 902 million was recorded in July, narrowing mildly from the USD 1.1 billion deficit last year. The trade deficit was broadly in line with our call and the Bloomberg market consensus. Although commodity exports remained weak in July, there were signs of a consolidating global demand recovery as non-commodity exports (around 50% of total) increased for the second consecutive month. The import decline was the mildest since the onset of the pandemic, but the still double-digit drops for both durable consumption and capital goods reflect the severity of the shock on domestic demand. The rolling 12-month trade deficit edged to USD 10.7 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 narrowing is unfolding more swiftly, with the seasonally adjusted trade deficit at USD 7.4 billion, annualized, down from USD 8.3 billion in 2Q20 and USD 9.6 billion in 1Q20. As the oil price recovery from earlier in the year consolidates and the significant output gap contains imports, a gradual narrowing of the trade deficit is likely to persist going forward.



Double-digit gains for non-durable goods imports, likely influenced by stay-at-home orders and consumption incentives (VAT-free days), led to a milder import decline. Imports (FOB) shrunk 20.9% in July (-28.5% in June). During the quarter ending in July, imports fell 30.3% (34.3% down in 2Q20), consistent with a significant deterioration of domestic demand as capital goods imports dropped by a third and durable consumer goods halved. At the margin, we estimate that the pace of the import drop decelerated to 49% qoq/saar, from a 75% decline recorded in 2Q20.


Colombian exports remained weak in July, dragged by coal and oil sales, but there are signs of recovery at the margin. In the month of July, total exports contracted 21.7% yoy, the mildest contraction since February. In the quarter ending in July, exports fell 30.1% (40.5% fall in 2Q20; -8.3% in 1Q20), dragged by commodity exports. At the margin, exports declined a far milder 24.1% qoq/saar, compared to the 80% fall in 2Q20. 
 
Recovering, but still low terms-of-trade and dampened global activity mean Colombia’s external account imbalances would persist ahead. However, the implosion of internal demand along with a weakened currency would lead to some narrowing of the current account deficit, to 3.2% of GDP this year, from the 4.3% last year. 

Miguel Ricaurte
Carolina Monzón



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