Colombia Business Forecast Report

Q4 2009

Publication Date	September 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI02727

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Summary

At A Juncture On the face of it Colombia has been relatively unaffected by the global downturn, with economic growth holding up well in the first three months of the year, supported by a relatively robust private consumer. However, on both the political and economic front we do see risks to this benign picture, ranging from what looks increasingly like a second constitutional amendment to allow President

??lvaro Uribe a third consecutive term in office, to a rapidly deteriorating public debt profile. In short, while Colombia's investment climate remains one of the most attractive in the region, key policy decisions over the next few quarters could well determine the country's political and economic outlook in years ahead.

With the passage of the referendum bill through Colombia's lower house, Uribe's re-election bid now looks highly likely. However, by moving away from a competitive party system to one dominated by the cult of personality, Uribe could undo many of the achievements his administration has achieved to date. For instance, not only is it unclear how a Democratic-controlled congress in the US (the primary recipient of Colombian goods and source of FDI) would respond to such a move - and whether this would hamper the passage of a free trade agreement with Colombia - but it could mean that Colombians opt for a more radical (and populist) policy direction once Uribe is forced to step down in 2014. As a result, we are growing increasingly concerned about the damage such a move would have on the country's democratic credentials.

We are also wary about the deterioration of Colombia's public debt outlook. Tighter repayment schedules and a rising external debt load means the government's debt profile has taken a significant turn for the worse during the recent downturn. We hold to our view that Colombia will not experience a credit event in the short term, particularly given implicit backing from the IMF (in the form of a US$10.5bn flexible credit line) and robust levels of international reserves. Nevertheless, with little respite for the fiscal coffers over the medium term, as tax revenues (which have fallen by COP1.4trn so far this year according to government estimates) remain subdued in light of our moderate growth outlook, Colombia appears to be moving further away from a sovereign credit upgrade in the near future.

On the economic activity front, the Colombian consumer has proved to be more resilient than we had previously expected, encouraging us to revise up our 2009 real GDP forecast from negative 1.4% to a contraction of just 0.4%. However, while a swift rate cutting cycle by the country's central bankers and still robust levels of credit growth have helped buoy private consumption levels, unemployment is rising, and an inflexible labour market means it is likely to continue in the short term. Add to this our below consensus global growth outlook for 2010, and we do not anticipate a strong bounce in Colombian economic growth until 2011 at the earliest (with real GDP growth unlikely to exceed 1.2% in 2010 according to our forecasts).

Content

Executive Summary
At A Juncture
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- A Reversal Of Democratic Credentials?
- With the passage of the referendum bill through Colombia's lower house, President ??lvaro Uribe's re-election bid looks
- highly likely
- Table: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth To Be More Resilient Than Robust
- Recent economic data suggests Colombia's economy has weathered the downturn better than we had expected,
- encouraging us to revise up or 2009 real GDP growth forecast to negative 0.4%, from -1.4% previously
- table: ECONOMIC ACTIVITY
- External Debt
- Debt Concerns Rising
- Tighter repayment schedules and a rising external debt load mean we are growing increasingly cautious regarding
- Colombia's debt profile
- table: DEBT INDICATORS
- Balance Of Payments
- Trade Blockade Unlikely To Last
- We are highly sceptical that Venezuelan President Hugo Ch??vez will be able to pursue a policy of substituting all
- Colombian imports beyond the short term
- table: CURRENT ACCOUNT
- Monetary Policy
- Pressure To Build, But Still No Cuts
- With August showing another downleg in headline consumer price inflation growth, we expect Colombia's business
- community to increase calls for a further policy rate cut in the months ahead
- table: MONETARY POLICY
- Commodity Outlook
- Coffee
- Coffee production has been a key driver of Colombia's development and is the country's most famous legal export
Chapter 3: 10-Year Forecast
- The Colombian Economy To 2018
- Below Trend Growth Going Forward
- Business-friendly policies and a steadily improving security situation will help Colombia maintain sustainable levels
- of economic growth over the period 2010-18, although we doubt real GDP growth will hit the lofty 5-7% levels for
- duration of our forecast period
- table: COLOMBIA Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to the
- downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- TABLE: LABOUR FORCE QUALITY
- Market Orientation
- Table: Latin America Annual FDI Inflows
- TABLE: BMI TRADE RATINGS
- Table: Top Export Dest inations
- Operational Risk
Chapter 6: Key Sectors
- Textiles & Clothing
- Executive Summary
- Colombia will continue to be a medium-sized global T&C producer. BMI's outlook, however, is optimistic and we see
- the country pushing its way up the world rankings
- Table: Textiles And Clothing Production And International Trade, 2006-2013
- Agribusiness
- Executive Summary
- The contribution of agriculture to Colombia's economy has been falling rapidly over the last few decades
- table: COLOMBIA Poultry Production, Consumption & Trade
Chapter 7: BMI Global Assumptions
- Global Outlook
- TABLE: GLOBAL ASSUMPTIONS
- Table: GLOBAL And REGIONAL REAL GDP GROWTH