Itaú BBA - Evening Edition – Trade deficit widens to a three-year high in Colombia

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Evening Edition – Trade deficit widens to a three-year high in Colombia

Fevereiro 17, 2020

The widening was almost entirely due to a smaller energy surplus, as commodity exports languished.

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Another trade deficit (the 24th consecutive negative balance) was recorded at the close of last year. The USD 0.5 billion deficit in December was similar to the one posted one year earlier (an improvement from previous months, as oil exports improved and fuel imports slowed), and broadly in line with market expectations. The USD 3.0 billion trade deficit in 4Q19 was USD 0.3 billion larger than the one registered in the final quarter of 2018, resulting in a widening from USD 7.0 billion in 2018 to USD 10.8 billion last year. The widening was almost entirely due to a smaller energy surplus as commodity exports languished. At the margin, the annualized trade deficit (using our seasonal adjustment) was USD 12.2 billion in 4Q19, but did moderate from USD 0.3 billion from 3Q19 as imports decelerated and oil sales fell by less. Regarding the current account, we expect the deficit was close to 4.5% of GDP last year (3.9% in 2018), and that it will remain near that rate in 2020, as weak global trade growth amid robust domestic demand are likely to keep external accounts under pressure. ** Full story here.

According to the central bank’s monthly analyst survey, receding inflationary pressures justify stable rates for the time being. Inflation expectations for 2020 edged down to 3.34% (3.40% previously; Itaú: 3.30%), following the downward surprise at the beginning of the year, as the food component continued to moderate. Meanwhile, the 1-year horizon inflation outlook ticked up to 3.43% (3.39% previously), while the 2-year horizon inflation expectations fell to 3.10%, from 3.25% in January. Expectations for inflation excluding food prices were broadly unchanged at 3.34% for a 1-year horizon (3.35% previously), while for the 2-year horizon they remained close to the Central Bank’s target. On the monetary policy front, analysts now foresee just one rate increase in the forecast horizon (vs. two hikes previously), which would take place in December 2020 (delayed from October expected in the January survey). We expect the board to keep the policy rate unchanged at 4.25% for the time being, given controlled inflation, well-behaved inflation expectations, and close to potential growth.


The BCB released its weekly survey with market participants (Focus). The median of IPCA inflation expectations for 2020 has been revised downwards for the seventh consecutive week, now at 3.22% (from 3.25% in the previous week). For 2021 and 2022, expectations remained flat at 3.75% and 3.50%, respectively. Regarding the economic activity, the median of GDP growth expectations for 2020 receded to 2.23% (from 2.30% in the previous week), and did not change for 2021 and 2022 (both at 2.50%). The median of year-end Selic rate forecasts remained flat for the three years horizon (2020 – 2022): at 4.25% for 2020, 6.00% for 2021 and 6.50% for 2022. On the exchange rate front, expectations remained at BRL 4.10/USD for 2020 and 2022, while it has oscillated to BRL 4.11/USD for 2021 (from 4.10).


The Central Bank’s trader survey following the January 29th monetary policy meeting shows an unchanged outlook of stable rates for the time being. All the respondents expect the policy rate to remain at 1.75% for at least one year, before reaching 2% in two years (scenario unchanged from last month). Meanwhile, both the one- and two-year inflation expectations remain anchored at the 3% target. A monthly CPI variation of 0.2% in February is in line with our preliminary forecast. We expect inflation to remain high in coming months, closer to 4%, but weakening internal demand would aid a moderation to 3.3% by yearend, below the central bank’s current 3.5% forecast. Overall, caution regarding future rate moves will prevail in the short term as the board opts to accumulate and digest additional information. Although we still expect more easing later in the year (to 1.25% by year-end), we note that the risks tilt toward stable rates, given the domestic uncertainties and the central bank’s already-expansionary monetary policy stance.

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