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Weak imports points to further domestic demand softening ahead.
2023/11/16 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

The gradual narrowing of the trade deficit continued in 3Q23, driven mainly by weakening imports. The trade deficit in September reached USD 0.6 billion (USD 1.4 billion deficit in September 2022), in line with the Bloomberg market consensus, but larger than our USD 0.4 billion call. During 3Q23, the trade deficit reached USD 2.2 billion (USD 4.3 billion in 3Q22), as imports contracted 25.5% yoy, while exports declined 19.1% yoy. As a result, the rolling 12-month trade deficit reached USD 11 billion, narrowing from the USD 14.5 billion deficit recorded in 2022 (USD 15.3 billion in 2021). 

Imports fell again sequentially in 3Q23, reflecting a softening of private consumption and investment weakness. Imports (FOB) contracted 25.5% yoy, deeper than the 19.5% contraction in 2Q23. Construction materials (-45.6% yoy), transport equipment (-39.7% yoy) and intermediate goods for industry (-30.8 yoy) were the main drags in the quarter. Imports of consumer goods fell 15.6% (down 9.9% in 2Q23). Imports excluding fuels and transportation equipment fell 25.6% yoy, (20.3% yoy contraction in 2Q23). At the margin, we estimate that imports fell 22.3% qoq/saar (-16.9% in 2Q23; -10.0% in 1Q23). 

Commodity exports remained weak in the quarter . During 3Q23, exports fell -19.1% yoy (from -21.5% yoy in 2Q23), dragged down by a double-digit decline of coal, coffee, and fuels exports. The oil export drop in the quarter (-8.4% yoy; -33.5% yoy in 2Q23) was driven by lower prices relative to last year.  Moreover, coal exports contracted 51.6% (-33.6% in 2Q23). Exports excluding traditional goods (oil, coal, coffee and ferronickel), accounting for 43.3% of total exports in the quarter, registered a milder contraction of 1.5% (+0.8% in 2Q23).  At the margin, exports contracted 16.9% qoq/saar (-5.5% qoq/saar in 2Q23).

Weakening domestic demand will support the narrowing of the current-account deficit. We expect the CAD to narrow to 3.5% of GDP this year, down from 6.2% in 2022.