Itaú BBA - COLOMBIA – Another large trade deficit in February

Macro Latam

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COLOMBIA – Another large trade deficit in February

Abril 21, 2020

The evolvement of external imbalances will depend on the opposing forces of low oil prices and slumped domestic demand

The trade balance in February came in at a USD 756 million deficit, in line with our call and the Bloomberg market consensus (USD 730 million), while somewhat larger than the USD 582 million deficit recorded last year. As a result, the rolling 12-month trade deficit sits at USD 10.6 billion (edging down from USD 10.8 billion in 2019, but still significantly wider than the USD 7.0 billion in 2018). Our own seasonal adjustment also shows the deficit ticking down in the quarter (to USD 9.5 billion, annualized, from USD 11.6 billion in 4Q19), as exports posted some recovery. In coming months, the evolvement of external imbalances will depend on the relative strength of the slump in exports, given lower oil prices and weaker external demand, and the halt in import demand due to the lockdown of the Colombian economy.  

Imports remained weak in February, and the outlook has deteriorated significantly. Total imports (FOB) grew 0.2% yoy in February (0.6% previously), still led by consumer goods demand. Non-durable consumer goods imports increased an upbeat 8.6% yoy, but slowed from 13.8% in January. Meanwhile, imports of capital goods were the key drag, contracting 5.6% yoy (+2.6% in January), pulled down by shrinking construction material and transport equipment. Total intermediate goods imports accelerated to 1.2% from a 4.9% drop previously, driven by fuels imports (something that will not persist). In the quarter ending in February, imports fell 0.6% (4.8% fall in 4Q19 and 5.1% rise in 3Q19), dragged by widespread weakness within the intermediate goods component (4.8% fall; 7% drop in 4Q19). Capital goods continued to shrink (0.4%; 5.3% fall in 4Q19), hinting at an unfavorable investment performance ahead. Meanwhile, consumer goods imports grew 8.1% yoy (flat in 4Q19), but the slumping consumer confidence in March, the weaker Colombian peso and the expected loosening of the labor suggest the consumer demand will falter ahead. At the margin, we estimate that imports grew 2.3% qoq/saar, improving from +7.2% decline recorded in 4Q19 (-0.2% in 3Q19), boosted by consumer and capital imports. 

Total exports contracted in February as coal sales were hampered by falling prices. Total exports shrunk 5.2% year over year in February (+11.5% in January; -5.7% in 2019), reflecting the effects of low commodity prices and already weak global demand. Coal exports contracted 24.3% (+81.1% in January; 23.9% drop in 2019), while oil exports dropped 1.6% yoy (+5.1% in January; 5.2% fall in 2019). The further drop in oil prices in March and April would increase the export drag from oil. In the quarter ending in February, exports expanded a mild 1.2% (8.7% decline in 4Q19), lifted by oil exports (3.6% vs. 11.1% fall in 4Q19), while coal exports moderated its decline to 3.9% yoy (38.6% fall in 4Q19). At the margin, exports increased 34.3% qoq/saar, up from 1.4% in 4Q19, driven by a commodity export rebound that would revert in coming months. 

While deteriorating terms-of-trade and slowing global activity means Colombia’s external account imbalances would persist, we expect some narrowing of the current account deficit from the 4.3% of GDP recorded last year to 3.7%.

Miguel Ricaurte
Carolina Monzón

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