Itaú BBA - COLOMBIA – Current account deficit widens in 3Q19

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COLOMBIA – Current account deficit widens in 3Q19

Dezembro 2, 2019

A wide CAD would leave the Colombian peso vulnerable to the domestic uncertainties.

As internal demand strengthened, and exports declined, the current account deficit widened sharply in 3Q19. The USD 3.9 billion deficit in 3Q19 was above our expectation (USD 3.6 billion), and USD 722 million larger than in 3Q18. The resulting rolling-4Q deficit widened to 4.5% of GDP from 4.2% as of 2Q19 and 4.0% last year. The rolling-4Q FDI is close to fully financing the CAD, while net-direct investment covers around 2/3 of the deficit. At the margin, our own seasonal adjustment shows the deficit increased to 4.5% of GDP in 3Q19, from 3.9% in 2Q19. Despite the rising CAD, the central bank has highlighted the financing dynamics (largely through direct investment) would limit the pressure to hike rates. 

The deterioration of the trade balance for goods in 3Q19 was partially contained by a shrinking income deficit and a rising transfer surplus. Compared to 3Q18, the trade deficit for goods was USD 1.7 billion larger, as exports fell a sharp 9.7% (+0.2% in 2Q19), while imports growth picked up to 4.6% yoy (2.3% in 2Q19). Meanwhile, reduced repatriation of profits from foreign investments in Colombia led to a lower income deficit (down USD 571 million to USD 2.3 billion). The transfer surplus rose USD 356 million over one year to USD 2.3 billion (the highest surplus on record), in line with remittances having a favorable impact on consumption.

Foreign direct investment into Colombia increased from 3Q18, while low portfolio investment flows reflects global uncertainty. FDI was directed to mining, financial services and manufacturing, reaching 4.4% of GDP in the rolling-4Q (3.5% in 2018), while net-direct investment came in at 2.9% of GDP (2.0% in 2018), partially financing the 4.5% CAD. Considering net-portfolio inflows, the CAD financing shortfall narrows further to 0.7% of GDP.

The current account deficit is likely to remain wide near current levels (4.5%) for next year, leaving the Colombian peso vulnerable to the domestic uncertainties surrounding the economy.

Miguel Ricaurte Carolina Monzón

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