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Slowing domestic demand will aid a CAD correction this year.

Vittorio Peretti & Carolina Monzón


The current account deficit widened to 6.2% of GDP last year, from 5.6% in 2021, the highest since 2015. In the final quarter of 2022, a deficit of USD 5.0 billion was recorded (6.1% of GDP), narrowing USD 0.9 from 4Q21, in line with the Bloomberg consensus, but below our USD 6.6 billion call. A rising income deficit (pulled by higher profits from foreign investment in Colombia) was offset by a narrowing of the trade deficit and rising transfers’ surplus. At the margin, our seasonal adjustment shows the annualized deficit at 5.5% of GDP in 4Q22, down from 6.6% as of 3Q22. A still large CAD along high inflation and a large positive output gaplead us to expect a 50bp rate hike to 13.25% later this month.

A narrowing USD 0.9 billion of the CAD from 4Q21 came on the back of a moderation in the trade deficit. Amid higher oil prices compared to 4Q21, the trade deficit for goods narrowed by USD 1.3 billion to USD 2.9 billion, as exports rose 7.0% yoy (42.4% in 3Q22), while imports fell 2.4% yoy (+31.1% in 3Q22). The services deficit narrowed by USD 0.9 billion amid falling global shipping fees, while the transfer surplus improved by USD 0.3 billion to USD 3.2 billion. Nevertheless, higher profits from foreign investments in Colombia led to a widening of the income deficit by USD 1.5 billion to USD 4.3 billion. Overall, the rolling-4Q balance of goods and services narrowed significantly to a USD 16.6 billion deficit in 2022 (USD 20 billion deficit in 2021). The transfer surplus reached USD 12.3 billion, USD 1.5 billion larger than in 2021. The income deficit widened significantly, doubling to USD 17.2 billion.

Foreign direct investment improved last year. Direct investment into Colombia came in at USD 3.9 billion in 4Q22, USD 1.4 billion above the levels one year earlier, while slightly below the USD 4.1 billion average in the previous two quarters. Net direct investment reached USD 3.3 billion (USD 1.4 billion in 4Q21), covering 66% of the CAD in 4Q22. For the full year, net direct investment more than doubled to USD 13.3 billion (62% coverage of CAD, recovering from the 34% in 2021). Foreign portfolio investment inflows moderated to USD 2.9 billion in 2022 (USD 8.3 billion in 2021), amid payments of net long-term debt securities in international markets (compared to net inflows in 2021).

We expect the current account deficit to narrow to 4.7% of GDP by the end of this year. The activity slowdown and still favorable oil prices would contribute to the some improvement of Colombia’s BoP in 2023.

Vittorio Peretti

Carolina Monzón