COLOMBIA – Wider-than-expected current account deficit in 2Q21

Suspension of protests and economic reopening support the activity recovery

Vittorio Peretti & Carolina Monzón


An internal demand recovery kept current account deficit wide in 2Q21. The USD 4.6 billion deficit in 2Q21 (6.4% of GDP) came in well above our and market estimations of USD 3.5 billion and was USD 2.7 billion wider than in 2Q20. As a result, the rolling-4Q current account deficit increased to 4.6% of GDP, the widest level since 2014, and well above the 3.9% in 1Q21 (3.6% in 2020). At the margin, our own seasonal adjustment shows the deficit increased to 6.9% of GDP in 2Q21 the highest level on record. A rising CAD, along with increasing inflationary pressure and the economic recovery, points to the lift-off of the monetary normalization cycle later this month.  

The USD 2.7 billion widening of the CAD in 2Q21 came on the back of rising trade deficit amid an internal demand recovery and larger income deficit. Compared to 2Q20, the trade deficit for goods was USD 2.1 billion larger, as the export recovery (37.4% yoy vs. 2.4% in 1Q21) was offset by swift import growth (56.2% rise vs. a 4.4% increase in 1Q21). Additionally, trade balance for services widened USD 0.6 billon from one year earlier to USD 1.7 billion. Meanwhile, higher profits from foreign investments in Colombia led to a wider income deficit (up USD 0.8 billion to USD 1.8 billion). The outflow of profits from FDI was widespread, with the mining sector (aided by increasing oil prices), financial industry, and transportation the key recipients. Containing the CAD rise was an improving transfer surplus to USD 2.6 billion (the highest on record). 

Meanwhile, foreign direct investment once again failed to fully fund the current account deficit. Direct investment into Colombia came in at USD 2.1 billion in 2Q21, above the USD 1.3 billion in 2Q20 but well below the USD 3.3 billion pre-pandemic level in 1Q20. For the rolling-4Q period, foreign direct investment totaled USD 7.6 billion, still below the USD 8.1 billion in 2020. The bulk of the investment in the quarter went to oil and mining, financial sector and transportation. Net direct investment moderated to USD 4.9 billion in the rolling year, from USD 5.9 billion in 2020. Despite the credit rating downgrade by S&P to speculative during the quarter, foreign direct portfolio investment continued to recover, sitting at USD 8.3 billion in the rolling year, up from the USD 7.5 billion recorded in 2020.

We foresee the current account deficit for this year at 4.3%, wider than last year’s 3.6%. However, risks lean to an even wider deficit as internal demand recovers amid the reopening of the economy.

Andrés Pérez M.
Vittorio Peretti 
Carolina Monzón