Economic Growth Will Remain Robust In 2014

BMI View: We forecast real GDP growth in Colombia to accelerate from 4.3% in 2013 to 4.5% in 2015, driven by stronger private consumption and fixed investment. Moreover, following a weak performance in 2013, we expect exports to pick up throughout 2014, further bolstering economic growth.

Real GDP growth in Colombia came in at 5.1% year-on-year (y-o-y) in Q313, driven by a sharp uptick in gross fixed capital investment, and we expect economic activity to remain robust in 2014 as a two-year long household deleveraging comes to an end in the coming months bolstering household spending. In addition, we anticipate a recovery in exports in 2014, as the labour-strikes that disrupted key export-oriented sectors through most of 2013 have mostly been resolved. We expect real GDP growth to stabilise in the 4.0%-5.0% range in the coming quarters, and forecast the economic growth to accelerate from 4.3% in 2013 to 4.5% in 2015.

Investment And Private Consumption Will Remain Key Drivers Of Growth

Multi-Year Growth Acceleration On Track
Colombia - Real GDP Growth

BMI View: We forecast real GDP growth in Colombia to accelerate from 4.3% in 2013 to 4.5% in 2015, driven by stronger private consumption and fixed investment. Moreover, following a weak performance in 2013, we expect exports to pick up throughout 2014, further bolstering economic growth.

Real GDP growth in Colombia came in at 5.1% year-on-year (y-o-y) in Q313, driven by a sharp uptick in gross fixed capital investment, and we expect economic activity to remain robust in 2014 as a two-year long household deleveraging comes to an end in the coming months bolstering household spending. In addition, we anticipate a recovery in exports in 2014, as the labour-strikes that disrupted key export-oriented sectors through most of 2013 have mostly been resolved. We expect real GDP growth to stabilise in the 4.0%-5.0% range in the coming quarters, and forecast the economic growth to accelerate from 4.3% in 2013 to 4.5% in 2015.

Multi-Year Growth Acceleration On Track
Colombia - Real GDP Growth

Investment And Private Consumption Will Remain Key Drivers Of Growth

Gross fixed capital investment expanded by 11.0% y-o-y in Q313 after averaging 1.9% y-o-y in H113, reinforcing our view that government delays on the tendering of infrastructure projects have been broadly addressed. Indeed, government investment in civil works jumped to 18.0% y-o-y in Q313, after contracting by 2.8% y-o-y in the previous quarter. Our Infrastructure team expects the sector to gain momentum over the coming months, lead by transport-related projects that seek to connect the country's booming extractive industries with key commercial routes ( see 'Upward Revision Underscores Much Brighter Outlook', November 22 and 'Views Confirmed As Majors Battle For PPP Road Contracts', November 28). As such, we forecast gross fixed capital investment growth to accelerate from 7.0% in 2013 to 7.2% in 2014.

End Of Government Delays Bodes Well For Investment
Colombia - Real GDP And Selected Expenditure Components, % chg y-o-y

We also anticipate stronger private consumption in the coming months amid an improvement in labour market dynamics and an expected end to a household deleveraging cycle that began in early 2012 ( see 'Household Deleveraging Approaching An Inflection Point', November 8). Indeed, Colombia's unemployment rate came in at 7.8% in October, down from 12.0% in January - falling to its lowest level in recent history. We forecast unemployment will fall further to 7.4% by end-2014 on the back of strong job creation the services and construction sectors, both which have been expanding rapidly in recent years. In addition, after continuously decelerating from 31.2% year-on-year (y-o-y) in December 2011, household debt (consumer loans plus housing loans) growth has stabilised around the 16.0% y-o-y level in recent months, which we believe points to an end of the deleveraging cycle. Consumer credit growth is already at its slowest pace since 2010, coming in at 12.9% y-o-y in August 2013, and we expect the Banco Central de la República's (BanRep) 200 basis points easing cycle to begin to feed through in the coming months and stimulate credit growth. We therefore forecast real private consumption growth to accelerate from 4.5% in 2013 to 4.7% in 2014.

Exports Will Recover In The Coming Months

We also expect stronger exports next year to contribute to an acceleration in economic growth. Goods exports contracted by an average of 2.9% y-o-y in the first 10 months of 2013 due to labour-strikes in key export-oriented sectors such as coal, which accounts for about 13.0% of total exports. However, strikes have mostly been addressed, and our Mining team forecasts coal production to pick up significantly, from a 0.3% contraction in 2013 to 6.0% growth in 2014. Similarly, our Oil & Gas team forecasts oil export (52.5% of total exports) growth to accelerate from 3.1% in 2013 to 6.0% in 2014, driven by improvements in production capacity. Finally, our Commodities team recently upgraded its Colombia coffee production forecast (see 'Global Coffee Outlook: Colombia Focus', October 22), which will further support export growth in 2014.

End Of Labour Strikes Will See Export Growth Pick Up
Colombia - Goods Exports

In addition, our Oil & Gas team forecasts oil export (52.5% of total exports) growth to accelerate from 3.1% in 2013 to 6.0% in 2014, driven by improvements in production capacity ( see 'New Fields Bolster Reserve And Production Prospects', December 12). Finally, our Commodities team recently upgraded its Colombia coffee production forecast ( see 'Global Coffee Outlook: Colombia Focus', October 22), which will further support export growth in 2014.

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Sector: Country Risk
Geography: Colombia
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