Country Report Colombia February 2009

Outlook for 2009-10

• Mr Uribe's high popularity will be eroded by the downturn and we no longer expect him to stand for a third term in May 2010. However, we expect that a centre-right candidate will win the presidential election, providing continuity.
• Fiscal and current-account deficits leave Colombia's economy particularly exposed to the global economic downturn. We expect policymakers to prioritise macroeconomic stability over growth, despite the electoral calendar.
• The impact of the economic slowdown on revenue and spending pressures will contribute to a widening of the NFPS deficit from an estimated 0.8% of GDP in 2008 to 3.3% in 2009 before narrowing to 2.5% of GDP in 2010.
• GDP growth will fall by 1% in 2009, entailing the first contraction of real GDP per head since 1999. A mild global economic recovery and Colombian policy easing in 2009 will help to lift GDP growth to 1.5% in 2010.
• Despite intervention by the central bank, lower foreign exchange inflows will weaken the peso, ending 2009 at Ps2,500:US$1 and 2010 at Ps2,535:US$1.
• The current-account deficit will widen to 4% of GDP in 2009 owing to weaker export demand and prices, narrowing in 2010 as terms of trade improve. A US$6bn IMF contingency credit will avert acute financing difficulties in 2009.

Monthly review

• The Fuerzas Armadas Revolucionarias de Colombia (FARC) guerrillas unilaterally released six of the remaining 28 “exchangeable” hostages it is holding, in an effort to gain leverage.
• The government revised its 2009 budget, envisaging a wider central government deficit of Ps18.8trn, or 3.9% of GDP. Further adjustments are likely, since the current GDP growth assumption of 3% will not materialise.
• Central government revenue grew by 12% in January-September, much weaker in real terms year on year, but owing to spending restraint the deficit was 0.1 percentage points narrower in GDP terms.
• The combined public sector deficit widened only marginally in 2008, to 0.9% of GDP. The result would have been worse had the local electoral cycle not meant that incoming mayors underspent because of project delays.
• On January 30th the central bank cut its intervention rate by 50 basis points to 9%, following a previous 50bp cut on December 19th, when easing began.
• Consumer confidence, unemployment and vehicle sales indicators for December all point to a sharp weakening of private consumption.

This report covers the following industry codes:
SIC Code: 10
NAICS Code: 212