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Favorable CAD financing.
2024/06/03 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Amid the economic slowdown, a significant narrowing of the CAD was observed in 1Q24. A USD 1.9 billion current account deficit was registered in the first quarter of the year (narrowing USD 1.1 billion from 1Q24), equivalent to 1.9% of GDP. The deficit was below our 3.0 billion call. A narrowing of the trade deficit, along with surplus in services (the first time since 2000), higher transfers and lower income deficit led to the significant narrowing of the CAD in 1Q24. As a result, the rolling-4Q current account deficit fell to 2.1% of GDP (USD 8.1 billion) from 2.5% of GDP (USD 9.1 billion) in 4Q23 and 3.4% of GDP in 3Q23. At the margin, our own seasonal adjustment shows the annualized deficit sits at 2.2% of GDP in 1Q24, 0.3pp up from 1.9% in 4Q23. Financing of the CAD remained favorable.


The USD 1.1 billion narrowing of the CAD in 1Q24 from last year was mainly due to a lower trade deficit, a services surplus, along with higher transfers and lower income deficit. Exports contracted 12.7% yoy during 1Q24 (5.4% drop in 4Q23), dragged mainly by coal exports, while imports fell by 10% (-10.3% in 4Q23), hampered by transportation equipment, agricultural goods and construction materials. Overall, the goods trade deficit widened USD 0.2 billion from 1Q23 to USD 2.1 billion. Meanwhile, the services balance moved from negative to positive territory, increasing by USD 0.5 billion to reach a USD 0.1 billion surplus, due to an increase in tourism, while transfers reached USD 3.3 billion (USD +0.2 billion).  Moreover, the income deficit narrowed by USD 0.5 billion to USD 3.3 billion as the continued slowdown of the economic activity likely dragged profitability of foreign investments in Colombia.


Net foreign portfolio investment fell in 1Q24, while the overall financing of the CAD remains favorable. Direct investment into Colombia came in at USD 3.6 billion in 1Q24, USD 0.5 below one year earlier. Net direct investment reached USD 2.5 billion (a USD 0.5 billion drop from 1Q24), resulting in USD 14.9 billion for the rolling year, achieving a 185% coverage of the CAD (174% in 2023; 65% in 2022).


Our Take:  We expect the current account deficit to widen slightly to 3.0% of GDP by the end of this year, as the weakening of domestic demand will sustain the narrowing of the current account deficit.