Itaú BBA - COLOMBIA – Weakening imports, but still a wide trade deficit

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COLOMBIA – Weakening imports, but still a wide trade deficit

agosto 14, 2019

With moderating global demand and low oil prices, we expect the CAD to remain wide, at 4.3% of GDP this year

Despite imports contracting in June (the first time since March last year), a sharper exports decline led to a further widening of the trade deficit. Imports are shrinking faster when transport and fuel imports are excluded, likely reflecting weakening internal demand momentum. In the final month of 2Q19, a trade deficit of USD 761 million was recorded, in line with our call and the market consensus, but larger than the USD 715 million deficit one year earlier. As a result, the trade deficit in 2Q19 widened from USD 1.6 billion in 2Q18 to USD 2.1 billion. The 12-month rolling trade deficit rose to USD 8.7 billion as of June, from USD 8.2 billion as of March (USD 7.0 billion in 2018). The recent widening is due to a smaller energy surplus. At the margin, the trade deficit moderated somewhat to a wide USD 9.2 billion (annualized) in the quarter from USD 9.8 billion in 1Q19.

The weakening import trend continued in June. Total imports (FOB) declined 6.0% yoy (+6.1% in May), the sharpest drop since the final month of 2017. In 2Q19, imports slowed to 2.5% yoy (9.4% in 1Q19 and 19.7% in 4Q18). However, excluding the fuel and transportation component, imports deteriorated further, dropping 4.7% (+7.4% in 1Q19). Consumer goods imports dropped 0.2% (+9.7% in 1Q19), while capital goods (excluding transportation equipment) fell 4.0% (+9.9% in 1Q19), hinting that a meaningful investment recovery is unlikely. At the margin, imports fell 1.0% qoq/saar in 2Q19, moderating from the decline in 1Q19, aided by transportation equipment. Excluding fuel and transportation equipment, import momentum deteriorated (from -2.6% qoq/saar in 1Q19 to -17.4%).

The coal export drag increased in 2Q19. Exports fell 8.7% yoy in June (+0.7% in May), the first annual drop since March. In 2Q19, they fell 1.7%, down from the 1.3% drop in 1Q19 and 1.0% increase in 4Q18. Coal (-8.9% yoy) and coffee exports (-13.1% yoy) were the key drags, hampered by both falling volumes and prices. Improving volumes led to oil export growth of 6.6% in the quarter, up from 4.5% in 1Q19. At the margin, the oil export recovery led total exports to accelerate to 4.2% qoq/saar (-2.6% in 1Q19).

With moderating global demand and low oil prices, we expect the current account deficit to remain wide, at 4.3% of GDP this year (from 3.9% last year). The large external account deficit, along with fiscal concerns, mean the Colombian peso is vulnerable, while headline inflation is on the rise (partly due to supply-side shocks). In this context, the central bank is less intent on easing monetary policy compared to regional peers. Nevertheless, we see room for rate cuts ahead as growth is unlikely to display the recovery expected by the monetary authority. 
 

Miguel Ricaurte
Carolina Monzón

 



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