Country Report Colombia January 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. We assume a centre-right candidate will win the presidential election, providing continuity.
• Fiscal and current-account deficits leave Colombia's economy 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 1.4% of GDP in 2008 to an annual average of 2.9% in the outlook period.
• GDP growth will fall by 0.5% in 2009 (down from last month's forecast of 1.8%) as the global recession bites. A mild global economic recovery and Colombian policy easing in 2009 will help to lift GDP growth to 1.5% in 2010.
• Lower foreign exchange inflows will cause reserves to fall and weaken the peso, ending 2009 at Ps2,419:US$1 and 2010 at Ps2,449:US$1.
• The current-account deficit will widen to 3.8% of GDP in 2009 owing to weaker commodity prices, narrowing in 2010 as the terms of trade improve.

Monthly review

• The lower house of Congress passed a bill that would allow a referendum to be held over whether Mr Uribe could stand for re-election in 2014. His supporters will try to change this to 2010 in the Senate, sustaining uncertainty.
• The government announced a Ps3trn cut in spending, but has covered its anticipated external financing needs by the issuance in January of a 10-year sovereign US$1bn global bond on reasonable terms (5% over US Treasuries).
• The Banco de la Republica (Banrep, the central bank) cut interest rates by 50 basis points to 9.5% in December 2008, heralding the start of an easing cycle.
• GDP growth slowed to 3.1% year on year in the third quarter, as private consumption decelerated and exports of goods and services came to a halt.
• In November manufacturing contracted by 13.3% year on year and national unemployment rose by 1.4 percentage points to 10.8%.
• The current-account deficit narrowed to US$4.2bn in January-September from US$4.8bn a year earlier, but this was mainly owing to the boost to exports from commodity prices. These have fallen, clouding the 2009 outlook.
• Trade data for October indicate a deceleration in both export earnings and imports (no data on volumes have been released yet), to 20.3% and 16.9%, respectively, reflecting weaker domestic and external demand.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;15
NAICS Code: 52;72;23