Itaú BBA - COLOMBIA – Another wide current account deficit in 2019

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COLOMBIA – Another wide current account deficit in 2019

Março 3, 2020

The favorable FDI inflows to Colombia would continue to allay possible central bank concerns

The current account deficit widened to 4.3% last year, up 0.4pp from 2018 and the largest deficit since 2015. Recovering internal demand amid lower oil prices led to a sharp widening of the trade balance deficit last year. In the final quarter of 2019 a deficit of USD 3.5 billion was recorded, somewhat narrower than the USD 0.2 billion posted one year before. However, at the margin, our own seasonal adjustment shows the deficit widened to 4.8% of GDP in 4Q19, from 4.5% in 3Q19. The favorable FDI inflows to Colombia continue to allay possible central bank concerns that otherwise would inspire talk of monetary policy tightening.  

The USD 0.2 billion narrowing of the CAD in 4Q19 came on the back of a rising transfer surplus, a shrinking income and services deficit and a milder rise of the trade deficit for goods. Compared to 4Q18, the trade deficit for goods was USD 0.2 billion larger, as the broadly stable double-digit fall of exports was countered by a notable weakening of imports (6.0% drop vs. a 5% rise in 3Q19). Meanwhile, lower profits from foreign investments in Colombia led to a lower income deficit (down USD 0.2 billion to USD 2.8 billion). The transfer surplus improved a tad, to USD 2.4 billion (the highest surplus on record), in line with remittances having a favorable impact on consumption.

Foreign direct investment into Colombia increased by nearly USD 1.0 billion from 4Q18, while portfolio investment outflows reflect global and domestic uncertainty. Last year, FDI reached 4.5% of GDP, up from 3.5% in 2018. Net direct investment came in at 3.5% of GDP, an improvement from 1.9% in 2018 but still failing to fully fund the current account deficit. Meanwhile, net-portfolio flows recorded the second consecutive year of outflows (totaling 0.2% of GDP).

Amid weak global demand, low oil prices and still robust domestic demand, external accounts are likely to remain under pressure. We expect a deficit of 4.4% this year. 

Miguel Ricaurte
Carolina Monzón

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