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Imports fall as domestic demand adjusts.
2023/07/19 | Vittorio Peretti & Carolina Monzón

The trade deficit in May came in at USD 0.6 billion, narrowing by USD 1.0 billion over one year. The deficit was somewhat above both the Bloomberg market consensus of USD 0.5 billion and our USD 0.3 billion call. Total imports (FOB) contracted 18.4% yoy (21.1% decline in April) dragged by consumption, intermediate and capital goods, while exports contracted 2.8% yoy in May (-31.5% fall in April). As a result, the rolling 12-month trade deficit reached USD 12.6 billion, narrowing from the USD 14.5 billion deficit recorded in 2022 (USD 15.3 billion in 2021). At the margin, our seasonal adjustment shows the trade deficit at USD 9.3 billion (annualized), narrowing from USD 11.8 billion recorded in 1Q23 (USD 12.5 billion in 4Q22).


Imports continue to fall sequentially as domestic demand adjusts. Total imports (FOB) contracted 18.4% yoy in May (21.1% down in April), dragged by fuels (-36.9% yoy), intermediate goods for industry (-25.6% yoy) and transport equipment (-21.5% yoy). In the quarter ending in May, imports contracted 17.9% yoy (-10.4% in 1Q23 and +1.2% in 4Q22). Imports excluding fuels and transportation equipment fell 18.6% yoy (14.9% contraction in 1Q23; -8.5% in 4Q22). At the margin, we estimate that imports fell 13.9% qoq/saar, (-10.5% in 1Q23). 


Oil exports remained weak. Exports fell 2.8% yoy (-31.5% in April). Exports excluding traditional goods (oil, coal, coffee and ferronickel), accounting for 46% of total exports expanded a 7.7% yoy (-6.1% in April). The oil drag persisted (down 34.1% yoy, similar to the drop in April), dragged down by prices (-38.3%). Weaker oil exports were partially compensated by the 69.6% yoy growth of coal exports (boosted by volumes). In the quarter ending in May, exports contracted 14.8% yoy (from -3.6% in 1Q23; +7.3% in 4Q22), dragged by a double-digit decline of coffee, oil, and agricultural exports. At the margin, exports expanded 10.6% qoq/saar (8.1% decline in 1Q23). 


The current account deficit could narrow gradually in 2023, aided by softening domestic demand and lower global transportation fees. Our CAD forecast is 4.4% of GDP for this year (6.2% in 2022).