Country Report Colombia July 2009

Outlook for 2009-10

• Regardless of whether Mr Uribe is able to stand for re-election, we expect that a centre-right candidate will win the May 2010 presidential election, providing policy continuity, although the downturn could make for a close contest.
• Fiscal and current-account deficits leave Colombia's economy somewhat exposed to the global economic downturn, but a US$10.5bn precautionary IMF credit line and a sound policy framework are supportive.
• The impact of the economic slowdown on revenue and spending pressures will contribute to a deterioration of the NFPS results from a virtual balance in 2008 to a deficit of 3.0% in 2009, widening to 3.4% of GDP in 2010.
• Real GDP will contract by 1% in 2009, the first contraction since 1999 (when it fell by 4.2%). A mild global recovery and Colombian monetary easing will help to lift GDP to growth of 2.5% in 2010.
• After rallying since February, the peso will weaken amid lower foreign exchange inflows and global risk aversion, to Ps2,300:US$1 by end-2009 and Ps2,351:US$1 in 2010.
• The current-account deficit will widen to 3.3% of GDP in 2009 owing to falling export earnings, remaining stable as both exports and imports recover.

Monthly review

• Despite recent scandals in which the government has been implicated, including illegal wire-tapping of opposition politicians and extrajudicial killings by the military, polls indicate that Mr Uribe would win re-election.
• Tensions between the executive and the judiciary surfaced over the opening of court investigations, against 86 congressmen, who voted in December 2008 in favour of a referendum to allow Mr Uribe to stand for re-election.
• The government announced its preliminary fiscal and financing programme for 2010, envisaging a winding fiscal deficit.
• First-quarter GDP fell by 0.6% year on year, dragged down by manufacturing, retail and communications. A mild fall across components of demand suggests Colombia has suffered less in the global crisis than some countries.
• Leading indicators point to continued weakness in the second quarter, although consumer confidence and public works have picked up.
• Monthly consumer price inflation in June fell by 0.06%, lowering the annual rate to 3.81% from 7.67% in December 2008.

Source: Country Report