Nearing recovery

COLOMBIA - Report 10 Sep 2021 by Juan Carlos Echeverry and Andres Escobar

Q2 GDP numbers were anxiously awaited, given the collective desperate need to determine whether Colombia had returned to pre-crisis economic activity levels. Dane data shows that the country is almost there in aggregate terms, though there are significant sectoral variations. In general, services and agriculture have been the good performers, with mining + oil, and construction, the laggards. This is leading to an expected shift in GDP composition. Less evident is that these shifts date back to the previous crisis, prompted by the 2014 oil price collapse.

With recovery came a deterioration in the current account in excess of government expectations. Q1 2021 validated our concerns, as the economy posted a worrisome 4.4% of GDP CAD, up 0.8 pp from the 3.6% of Q1 2020. The Q2 CAD then exceeded expectations, jumping to a whopping 6.3%. The country is experiencing a widening of its external imbalances, in tandem with a weakening in the quality (composition) of the financing of those imbalances.

The obvious policy response should be a mix of fiscal and monetary tightening, despite the effects these actions might have on economic activity, as external imbalances can turn into financing crises. As fiscal tightening will materialize only through a protracted process, action on the monetary policy front cannot be postponed any further. The recent spike in inflation and its effects on inflation expectations might be cited as a reason to start hiking rates as soon as September, but the external vulnerabilities are a far more pressing matter.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.