Country Report Colombia March 2009

Summary

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 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 balance from an estimated small surplus in 2008 to a deficit of 3.3% in 2009, narrowing to 2.8% of GDP in 2010.
Real GDP will contract by 3% in 2009 (revised from a contraction of 1% last month), the first contraction since 1999. A mild global recovery and Colombian monetary easing will help to lift GDP to growth of 1.5% in 2010.
Despite intervention by the central bank, lower foreign exchange inflows will weaken the peso, ending 2009 at Ps2,600:US$1 and 2010 at Ps2,637:US$1.
The current-account deficit will widen to 4% of GDP in 2009 owing to falling export earnings, narrowing in 2010 as terms of trade improve. A US$6bn IMF contingency credit will avert financing difficulties in 2009.

In light of the persistent reluctance of the president, Alvaro Uribe, to state publicly whether he wants to run for a third term in May 2010, other candidates have stepped forward.
Preliminary headline fiscal results for January were deceptively good. Overall tax collection exceeded target, but currency depreciation swelled customs revenue, while domestic taxes fell short.
Banrep has stepped up the pace of its easing cycle, taking its intervention rate from a peak of 10% in December 2008 to 8% currently, after cutting rates by 100 basis points at its late-February meeting.
Manufacturing and retail sales (accounting for over one-third of GDP) contracted by 10% and by 2.5% (year on year) in the fourth quarter, pointing to a fall in quarterly GDP year on year.
The trade seizure owing to the finance crunch and the global economic shock led to a drastic fall in exports in November, with a further, less dramatic, fall in December. Even so, the trade deficit (fob-cif) narrowed in 2008 to US$2bn.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;59;39
NAICS Code: 22;44;31