Colombia’s export sector is likely to experience further downside pressure over the remainder of this and into next year as a result of the US attacks.  In addition, slower growth in the United States, coupled with a global downturn, is likely to exert pressure on oil prices, Colombia’s principal export commodity.  Moreover, the current downward trend in coffee prices, Colombia’s second largest export commodity is unlikely to revert in the face of a more recessionary global setting.

Growth revised downward modestly.  On 28 September, the National Statistical Department (DANE) reported revised GDP data for the second quarter of this year, which shows that economic activity rose 1.55% over the same quarter last year, virtually unchanged from the 1.57% reported in August.  Simultaneously, the first quarter growth figure was revised upward to 1.79% from 1.67% reported earlier.  The government claimed that low consumption and the downturn in exports were the main drivers behind the economic slowdown over last year - GDP growth was at 3.2% in the second quarter last year.  Despite indications of a strong moderation in growth, the government has decided to maintain its 2.4% growth target for this year.  The official growth estimate remains well below this month’s Consensus Forecast.  Consensus Forecast growth forecasts for next year also have been revised downward.

Commodity prices already down.  According to the most recent data from DIAN, exports dropped by 6.6% in July over the same month last year, following a 13.4% contraction in June.  So far this year, exports declined in five of the first seven months.  The 31.3% contraction in traditional exports, namely coffee and oil was the main force driving the export downturn.  Coffee exports dropped 33.2% in July over the same month last year and are unlikely to have improved significantly in the third quarter since the price per pound for the Colombian Arabica traded in New York dropped further to US$ 0.67 at the end of September.  This represents the lowest level observed since June 1993 and remains well below the average US$ 1.09 price in 2000. 

External balance weakening likely to persist.  The July export performance was also hampered by dropping oil exports.  Oil exports dropped a staggering 46.7% over July, following the 41.3% annual contraction observed in June.  Sales suffered from the moderation in oil prices – the US$ price for a barrel of West Texas Intermediate crude had dropped 5.3% through the end of July over the same month last year.  However, far more importantly, was the plunge in oil production.  Oil output has been plagued by guerrilla sabotage of the oil infrastructure – the second largest oil pipeline of Caño Limón has been closed down on for extended periods of time since February of this year.  As a result, oil production in July was down 16.8% over the same month last year, which represented the sixth consecutive monthly contraction this year. 

The persistence in strong contractions of traditional exports continued to be partially compensated for by continued healthy growth in non-traditional exports (53.3% of total exports), which rose 18.1% in July over the same month last year.  Banana and chemical product exports registered the strongest growth rates with a 66.0% and 39.7% expansion respectively.

Import growth remained strong in July, with growth reaching 21.6% over the same month last year.  Key behind the strong growth was the spike in consumer and capital goods imports, which were up 40.7% and 40.6% over July last year.  Intermediate good imports also received a strong 7.0% boost in July over the same month last year. 

The weak export performance together with the healthy jump in imports served to lower the annual trade surplus from US$ 537 million in June to US$ 279 million in July.  Panellists expect the slowdown in domestic economic activity to help moderate import demand further.  However, the increased likelihood of further declines in exports is likely to offset any improvement in external accounts.  Nevertheless, the trade balance should recover marginally.  The trade balance is not expected to experience a major deterioration next year, as lower domestic demand is likely to drive down import growth.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Colombia.  For more details please click here.

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