Country Report Colombia May 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 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 a virtual balance in 2008 to a deficit of 3.4% in 2009, narrowing to 2.7% of GDP in 2010.
• Real GDP will contract by 2% 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 1.8% in 2010.
• Despite intervention by the central bank, lower foreign exchange inflows will weaken the peso.
• The current-account deficit will widen to 3.9% of GDP in 2009 owing to falling export earnings, narrowing in 2010 as terms of trade improve.

Monthly review

• Legislation to amend the constitution to allow Mr Uribe's re-election has been gathering momentum in Congress, given improved unity among most members of the several parties in the government coalition.
• Despite the weaker public finances and clear signs that the recession has deepened, investor sentiment of creditworthiness has not suffered much, bolstered by confidence in the government's pursuit of cautious fiscal policies.
• At its April 30th meeting the central bank cut rates by 100 basis points, taking the rate to 6%. Disinflationary trends open the way for further interest rate cuts.
• Consumer confidence fell to -4.8 points in March35.7 points below its level a year earlierand the second consecutive negative month, something not experienced since early 2003.
• Colombia's financial markets and the peso have benefited from the rally in global stockmarkets after the nadir reached in early March.
• The latest data (for February) point to further sharp declines in manufacturing and construction as well as persistently weak retail sales.
• Indicators from oil, mining and financial services were relatively good. Elsewhere, indicators were mixed. The national unemployment rate rose to 12% in March, but 200,000 net jobs were created.

This report covers the following industry codes:
SIC Code: 60;49;79;70
NAICS Code: 52;22;71;72