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Weak oil exports limits speed of CAD correction.

Despite falling imports, export weakening led to only a gradual narrowing of the large trade deficit in 1Q23. The trade deficit in March came in at USD 1.1 billion, narrowing USD 0.4 billion over one year. The deficit was above the Bloomberg market consensus of 0.9 billion, and our USD 0.4 billion call. During 1Q23, the trade deficit was a large USD 3.1 billion. As a result, the rolling 12-month trade deficit reached USD 13.2 billion, from the USD 14.4 billion deficit recorded in 2022 (USD 15.3 billion in 2021). Total imports (FOB) contracted 14.5% yoy (10.3% decline in February), dragged by durable consumption goods and energy goods. Exports contracted 10% yoy in March (-0.1% fall in February), pulled down mainly by oil sales as prices fall. At the margin, the quarterly seasonally adjusted trade deficit reached USD 11.8 billion (annualized), narrowing from USD 12.2 billion recorded in 4Q (USD 16.7 billion in 3Q22). While we believe the interest rate hiking cycle concluded at 13.25%, the still wide twin deficits amid high inflation mean rate cuts this year are unlikely.



Imports continued to fall sequentially in 1Q23. In the first quarter of the year, imports (FOB) contracted 10.4% yoy, weakening from the 1.2% fall in 4Q22 (+31.7% in 3Q22). Intermediate goods for industry (-22.2% yoy), construction materials (-16.4% yoy) and capital goods for industry (-15.8% yoy) were the main drags in the quarter. Imports excluding fuels and transportation equipment fell 14.9% yoy (8.5% contraction in 4Q22; +22% in 3Q22). At the margin, we estimate that imports fell 8.8% qoq/saar, (-48.0% in 4Q22 and -0.2% in 3Q22) likely hampered by tightening financial conditions and COP weakness.


The oil drag deepened during the first quarter of the year. In 1Q23, exports contracted 4.7% yoy (from +7.3% in 4Q22), dragged by a double-digit decline of both oil and coffee exports.  The oil export drop in the quarter (-25.8% yoy, -3.6% in 4Q22) was driven entirely by prices as volumes remained stable over one year. The weaker oil exports were partially compensated by the 45.6% yoy growth of coal exports (boosted by prices and volumes). Exports excluding traditional goods (oil, coal, coffee and ferronickel), accounting for 40.8% of total exports in the quarter, registered a mild 0.1% annual growth (0.6% in 4Q22). At the margin, exports contracted 8.0% qoq/saar (39.0% decline in 4Q22; 27.3% down in 3Q22). 


The current-account deficit should narrow in 2023 as domestic demand weakens and remittances increase. We expect a CAD deficit of 4.4% of GDP (6.2% in 2022).

Vittorio Peretti 

Carolina Monzón