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Colombia Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

We believe that Colombia’s economy will expand at robust growth rates in the coming years, characterised by improved macroeconomic conditions and an increasingly friendly business environment. Stronger private consumption will drive the majority of growth, although gross fixed capital formation (GFCF) will play an increasingly
important role over the coming quarters. The infrastructure, mining and hydrocarbons sectors are particularly well positioned for growth. We expect President Juan Manuel Santos to win re-election in May, and anticipate broad policy continuity throughout the next administration.

Major Forecast Changes

The Colombian peso strengthened more than we expected in Q214, prompting us to revise our 2014 average exchange rate forecast from COP1,980/USD to COP1,955/USD.
We revised our end-2014 policy rate forecast from 3.75% to 4.25%, amid an early than-expected monetary policy tightening cycle by Colombia’s Banco Central de la República.

Table Of Contents

Colombia Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics . 8
Economic Policies To Remain Investor-Friendly Despite Tight Presidential Race..8
We expect economic policy to remain investor-friendly in Colombia regardless of the result of the tight presidential race. The election,
which we believe is too close to call, will be decided June 15 in a second -round run-off between centre-right Óscar Iván Zuluaga and
incumbent President Juan Manuel Santos. A victory by Zuluaga would have the most negative implications for the security environment,
as it would increase the risk of attacks by left-wing insurgent groups.
Long-Term Political Outlook 9
Many Structural Challenges Ahead..9
While Colombia's long-term political outlook is set to remain relatively stable compared with its neighbours, we identify several massive
political challenges for the government over the next decade and highlight three scenarios for change.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity .. 14
Growth To Accelerate As Consumption Picks Up And Exports Recover14
Real GDP growth in Colombia will accelerate in 2014 and 2015, driven by stronger private consumption growth and a recovery in goods
exports. Indeed, record-low unemployment levels, combined with rising access to consumer credit, will support stronger household
spending, while robust external demand for thermal coal, and improvements in oil production growth, will bolster exports.
Table: GDP By Expenditure...14
Fiscal Policy 16
Fiscal Consolidation To Resume In 2015 As Spending Moderates..16
Colombia's government budget deficit will widen to 2.5% of GDP in 2014 from 2.2% in 2013, due to an uptick in spending in H114 in the
run up to the presidential election. However, we expect fiscal consolidation to resume in 2015, driven by a moderation in spending and
greater revenue growth, especially from income tax.
Table: Fiscal Policy16
Balance Of Payments . 17
External Accounts To Benefit From Trade Diversification17
We forecast Colombia's current account deficit to narrow in the coming years on the back of robust export growth, particularly in the oil
and coal sectors. While Colombia is highly exposed to declining US demand for oil amid the ongoing shale boom, growing diversification
into Asian markets will ensure oil exports continue to grow at a strong pace. In addition, Colombia's external accounts will also benefit
from steady demand for thermal coal, both out of Asia and Europe.
Table: Current Account...17
Monetary Policy .. 19
Additional Rate Hikes This Year As The Economy Picks Up Steam19
We expect Colombia's Banco Central de la República (BanRep) to pursue additional rate hikes this year, following a 25 basis points
(bps) hike to 3.50% in April, and 25bps to 3.75% in May. We forecast 50bps worth of hikes to 4.25% by end-2014, as economic activity
continues to improve and inflation expectations head higher.
Table: Monetary Policy19
Currency Forecast... 20
COP: Capital Inflows To Sustain Strength.20
The strength that the Colombian peso has experienced in recent months will prevail through the rest of the year, driven by capital
inflows into domestic debt, and robust foreign investment into the hydrocarbons sector. However, ongoing intervention by Colombia's
central bank will prevent the unit from appreciating significantly below support at COP1,875/USD for a sustained period.
Table: BMI Colombia Currency Forecast...20
Table : Excha nge Rate 21
Regional Sovereign Outlook.. 22
A Divergent Outlook For Regional Credit Risk...22
Most major Latin American sovereigns will see credit risk remain relatively stable in the coming quarters given a reduced prospect of
sharp capital outflows and still-robust macroeconomic fundamentals. However, poor fiscal dynamics will weigh on investor perceptions
of credit risk in Brazil, and credit default swap markets will continue to price in an elevated risk of default in Argentina and Venezuela.
Chapter 3: 10-Year Forecast... 25
The Colombian Economy To 2023.. 25
Sustainable And Sturdy Growth.25
Business-friendly policies and an improving security situation will help Colombia achieve sustainable levels of strong real GDP growth,
which we forecast will average 4.6% in 2014-23. A surge in fixed investment will catalyse such growth over the coming years and we
expect consumption to follow suit and remain the main driver of the Colombian growth story.
Table: Long-Term Macroeconomic Forecasts25
Chapter 4: Business Environment. 27
SWOT Analysis 27
BMI Business Environment Risk Ratings.. 27
Business Environment Outlook. 28
Table: BMI Business And Operation Risk Ratings28
Institutions... 29
Table: BMI Legal Framework Rating.29
Table: Labour Force Quality..30
Infrastructure... 31
Market Orientation... 32
Table: Trade And Investment Ratings.32
Operational Risk.. 33
Chapter 5: Key Sectors.. 35
Defence 35
Table: Defence Expenditure...35
Shipping .. 39
Table: Major Port Data, 2011-2018..42
Other Key Sectors... 43
Table: Oil and Gas Sector Key Indicators.43
Table : Pharma Sector Key Indicators 43
Table: Infrastructure Sector Key Indicators...43
Table: Telecoms Sector Key Indicators44
Table: Food and Drink Sector Key Indicators.44
Table : Freight Key Indicators 44
Chapter 6: BMI Global Assumptions. 45
Global Outlook. 45
Emerging Market Deceleration45
Table: Global Assumptions.45
Table : Developed States , Real GDP Growt H, %...46
Table : Emergi ng Markets , Real GDP Growth , %..47

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