Country Report Colombia October 2009

Outlook for 2010-11

• Although time is running short, we still expect Mr Uribe to be able to stand for and win re-election in 2010. If he does not stand, we still expect that a centre-right candidate will win, providing general policy continuity.
• 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 deficits of 3% of GDP in 2009, 3.4% in 2010 and 2.6% in 2011.
• Despite widening, Colombia's fiscal and current-account deficits appear manageable given liquid domestic markets, sustained FDI inflows into the oil sector and other capital inflows.
• We expect that real GDP will perform better than the regional average and record slight growth in 2009 before a mild global recovery and Colombian monetary easing will help to lift GDP growth to 2.4% in 2010 and 3.5% in 2011.
• After rallying since February, the peso will weaken slightly during the rest of 2009, amid lower foreign-exchange inflows, to end the year at Ps2,093:US$1. The rate will then depreciate to Ps2,175:US$1 by end-2011.
• The current-account deficit, which we estimate will reach 3.1% of GDP in 2009, will narrow slightly in 2010, on a gradual improvement in the trade balance, to 2.6% of GDP before falling back slightly to 2.9% of GDP in 2011.

Monthly review

• A September poll found that Mr Uribe's approval rating reached 74%, up from 70% in the previous survey; 50% are now in favour of his re-election.
• Despite the persistence of regional tensions, relations between Ecuador and Colombia are improving. Official negotiations to re-establish diplomatic ties, which were severed in March 2008, are expected to begin in October.
• The central bank took advantage of low inflation to cut its benchmark interest rate further in September, to 4%, in order to boost economic growth and alleviate currency-appreciation pressures.
• Following a review of the fiscal situation which found lower-than-expected revenue, the Uribe administration revised its fiscal deficit targets for this year, from 3.7% to 4% of GDP for the central government.
• According to preliminary estimates, the economy contracted by 0.5% year on year in the second quarter, but it grew by 0.7% on the previous quarter. Both rates surprised on the upside, although household consumption was weak.
• Export-oriented manufacturing activities are likely to be further affected by the restrictions that the Venezuelan government has been imposing on imports from Colombia since August.

This report covers the following industry codes:
SIC Code: 39
NAICS Code: 31