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External imbalances yet to correct

Vittorio Peretti & Carolina Monzón


A large trade deficit of USD 1.5 billion was recorded in October, above both the Bloomberg market consensus and our call of USD 1.3 billion, while broadly in line with the deficit recorded one year ago. A contraction in oil exports, amid upbeat capital goods imports and a gradual slowdown in consumer goods imports drove the large deficit. As a result, the rolling 12-month trade deficit sits at USD 15.3 billion (USD 15.2 billion as of June; USD 15.3 billion in 2021). At the margin, the quarterly seasonally adjusted trade deficit reached USD 19.3 billion (annualized; USD 17 billion in 3Q; USD 11.6 in 2Q22). Wide twin deficits amid elevated inflationary pressures lead us to expect the tightening cycle to continue early next year (taking rates to 12.5%).

Consumer goods imports expectedly slowing. Total imports (FOB) rose 7% yoy, down from 17% in September. Fuels (32% yoy) and capital goods (25% yoy) were drivers in the month, while the pull from consumer goods imports gradually eases (4.4% yoy). In the quarter ending in October, imports grew 19.8% yoy (32% in 3Q and 38% in 2Q22). Imports excluding fuels and transportation equipment increased 12.5% yoy (22% in 3Q and 31% in 2Q22). At the margin, we estimate that imports fell 21.3% qoq/saar, from the +4.7% registered in 3Q22 (37.5% in 2Q22).

Exports moderated in October. Exports rose by 10.9% yoy in October, down from the 26.0% rise in September. Lower export growth was explained mainly by weakening oil exports (-7.1% yoy; -5.5pp from September) due to a double-digit annual contraction of volumes, while price growth slowed. Lower oil exports were partly offset by a price-led 64.5% yoy increase of coal exports. Exports excluding traditional goods (oil, coal, coffee and ferronickel), accounting for around 40% of the total, increased 5.3% yoy, decelerating from the 13.4% in September. During the rolling-quarter ending in October, export growth slowed to 21.9% yoy (41.9% in 3Q22; 69.3% in 2Q22), while at the margin, exports contracted 51.7% qoq/saar (the largest fall since 2Q20).

We expect a CAD of 6.6% of GDP for 2022 (5.7% in 2021). The expected slowdown of domestic demand and COP weakness would support a gradual CAD moderation to 5.0% of GDP by the end of next year.

Vittorio Peretti

Carolina Monzón