colombia economic outlook - bbva research economic outlook 1st quarter ... upward generalized...
TRANSCRIPT
Colombia Unit January 2018
Colombia Economic
Outlook 1st Quarter 2018
Main messages
1. World growth shows robustness. Upward generalized revision in 2018 by areas, trending towards
stabilization in 2019. Latin American growth recovers. Growth is revised upwards by 0,1pp in 2018
and remains stable at 2,5% in 2019. Growth is supported mainly by the external sector and
investment.
2. Colombian recovery should consolidate in 2018, specially in the second half. Lower inflation
and interest rates and a more favorable global context support investment in equipment and
machinery and household expenditure in durable goods. For 2018 GDP growth would be 2,0% and
for 2019 3,0%.
3. Inflation will continue decelerating in 2018, achieving 3,1% in the year end. Exchange rate
stability and weakness in demand will allow inflation to decelerate in the first semester of 2018 and
stabilize around the mid-point of the target range. For 2019 inflation would close slightly below, at
2,8% The Central Bank will be able to reduce interest rates to 4,0% in the first semester.
Inflation behavior and its consolidation within the target range will allow the Bank to reduce its
reference rate in the first semester to maintain the real interest rate stable.
4. Structural imbalances, both external and fiscal, tend to improve. The demand adjustment and
higher oil prices allow for a reduction in the current account deficit to 3,2% in 2018, meanwhile the
fiscal deficit will meet the fiscal rule at 3,1% in 2018. For 2019 the government faces some
challenges in the fiscal front with the need to further reduce expenditure and improve revenue to
comply with the fiscal rule
Content
02
03
04
Ordered but slow recovery
Controlled inflation and monetary stimulus
Macroeconomic imbalances
01 Global context
GLOBAL World growth consolidates
and the global monetary
policy normalization strategy
progresses
01
Global growth consolidates
5
01 Projections for the U.S., China
and Eurozone improve
There is less uncertainty in the
short run
02 More positive perspectives for
emerging economies
Better global demand and higher
commodity prices
03 Greater caution in financial
markets
Expectations of less liquidity
might reduce flows to emerging
economies
04 Central Banks continue
progressing towards
normalization
Motifs to withdraw stimulus are
materializing in the midst of a
contained core inflation
05 Global risks
Less significant in the short run;
without changes in de mid to long
run
Reasons for optimism in the main areas, though with caution
6
Upward growth revision
Improvements in the labor market
Approval of the fiscal reform
Non-disturbing changes in the FED
Moderate deceleration
Some reforms underway
Positive conclusions from the
XIX Congress of the CChP
Higher potential growth
Better growth than expected
More robust internal demand
Lower political uncertainty
Plans for greater integration
U.S. CHINA EUROZONE
Global growth: robust and sustained
7
World growth continues, supported in
the recovery of the industrial sector
Confidence indicators have improved
and anticipate continuity in the current
scenario
Private consumption continues to drive
growth in advanced economies and
gains propulsion in emerging
economies
World GDP growth (Projections based on BBVA-GAIN %, q/q)
Source: BBVA Research
0,4
0,6
0,8
1,0
1,2
De
c-1
2
Ju
n-1
3
De
c-1
3
Ju
n-1
4
De
c-1
4
Ju
n-1
5
De
c-1
5
Ju
n-1
6
De
c-1
6
Ju
n-1
7
De
c-1
7
CI 20% CI 40% CI 60%
Point Estimates Period average
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
De
c-1
3
Ju
n-1
4
De
c-1
4
Ju
n-1
5
De
c-1
5
Ju
n-1
6
De
c-1
6
Ju
n-1
7
De
c-1
7
"risk-on mood"
"risk-off mood"
Cautiousness in financial markets, with gradual moderation in flows to
emerging economies
8
Apetite for risk indicator 1st Factor (global), analysis of capital flows EPFR
Source: BBVA Research, EPFR
Acceleration in
the
normalization
process
Post-Trump
Pre-Trump
Non-conventional monetary policies withdrawal
9
Fed
ECB
BoJ
Hard
enin
g
Softe
nin
g
Pre-crisis crisis normalization
Hike in interest
rates
Reinvestment of
maturities
Hike in interest
rates
Partial
reinvestment
Reduction
in Bond
buying
The Fed accelerates policy normalization meanwhile the BCE moderates
10
FED ECB
Ongoing interest rate hiking
cycle and balance reduction
75bp hikes anticipated for 2018, to
2,25% and reduction of the balance
of 500 billion dolars
QE reduction, but extension until
September 2018
No interest hikes before 2019
Objective: avoid a sudden hike
in long term interest rates Objective: gain action margin
• Macro: possible
inflation surprises
Uncertainty elements:
• Political: changes in
policy makers
(Fed, ECB)
• Markets: long term
rates and slope of the
curve
Generalized upward growth revision
11 Source: BBVA Research
U.S.
2018
2,6 2019
2,5
South America
2019
2,6
Eurozone
China 2018
2,2
2019
6,0
World
2018
3,8 2017
3,8
Decreases
Increases with respect to October 2017 projections
Remains the same
2019
1,8
2018
1,6
2018
6,3 Mexico 2019
2,2 2018
2,0
Higher commodity price forecasts mainly driven by greater world
demand.
12
Source: BBVA Research and Bloomberg
OIL BRENT
(USD/B)
SOY
(USD/mt)
COPPER
(USD/lb)
Oil price reflects a greater demand but also some supply
factors, geopolitical risks and a correction of inventories. We
continue to anticipate a long term price of USD 60 per Brent
barrel due to higher competition
Copper price increased significantly by greater demand
and the pressure of financial factors. The later should
increase gradually looking forward
300
350
400
450
500
550
600
1T
2014
3T
2014
1T
2015
3T
2015
1T
2016
3T
2016
1T
2017
3T
2017
1T
2018
3T
2018
1T
2019
3T
2019
1T
2020
3T
2020
Baseline Sep 2017
Baseline Dec 2017
1,5
1,7
1,9
2,1
2,3
2,5
2,7
2,9
3,1
3,3
1T
2014
3T
2014
1T
2015
3T
2015
1T
2016
3T
2016
1T
2017
3T
2017
1T
2018
3T
2018
1T
2019
3T
2019
1T
2020
3T
2020
Baseline Sep 2017
Baseline Dic 2017
0
20
40
60
80
100
120
1T
2014
3T
2014
1T
2015
3T
2015
1T
2016
3T
2016
1T
2017
3T
2017
1T
2018
3T
2018
1T
2019
3T
2019
1T
2020
3T
2020
Baseline Sep 2017
Baseline Dec 2017
Ordered but slow
recovery
GDP will grow 2,0% in 2018
and 3,0% in 2019
02
Growth touched bottom in the second quarter of 2017,
achieving an inflection point
Source: BBVA Research with data from DANE, XM and ANH 14
GDP annual growth (%)
The improvement in most economic sectors in the second semester was shadowed by a poor behavior in the construction sector (residential)
Selected leader indicators (%)
6,5
4,0 3,9
3,2
2,63,0
3,3 3,4
2,5 2,5
1,21,7
1,3 1,2
2,0
0
1
2
3
4
5
6
7
Ma
r-1
4
Jun-1
4
Sep-1
4
De
c-1
4
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
2,0
-8,7
-0,3
14,7
1,32,0
-10
-5
0
5
10
15
Non trad. Exports** Oil production Energy demand
1S17 2S17*
* Exports and energy demand with data to November
** Does not include gold and emeralds
In part, the slow recovery is associated to the weakness in
confidence indicators
Consumer confidence (Balance)
Source: BBVA Research with data from Fedesarrollo 15
Industrial and retailers confidence (Balance)
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
Nov
-02
Aug
-03
May
-04
Feb
-05
Nov
-05
Aug
-06
May
-07
Feb
-08
Nov
-08
Aug
-09
May
-10
Feb
-11
Nov
-11
Aug
-12
May
-13
Feb
-14
Nov
-14
Aug
-15
May
-16
Feb
-17
Nov
-17
Consumer confidence Country component
Household component
-30
-20
-10
0
10
20
30
40
No
v-02
No
v-03
No
v-04
No
v-05
No
v-06
No
v-07
No
v-08
No
v-09
No
v-10
No
v-11
No
v-12
No
v-13
No
v-14
No
v-15
No
v-16
No
v-17
Retailers confidence Industrial confidence
Though, some factors start to provide a positive impulse to
growth
16
Price and oil production (Barrels, USD/barrel Brent)
Foodstuffs annual inflation and policy interest rates (annual %)
Source: BBVA Research with data from ANH, Bloomberg, DANE and BanRep
30
35
40
45
50
55
60
65
70
800
850
900
950
1000
1050
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Ma
r-1
8
Jun-1
8
Sep-1
8
De
c-1
8
Production (lhs) Brent price (rhs)
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
0
2
4
6
8
10
12
14
16
18
Jun-1
4
Sep-1
4
De
c-1
4
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Foodstuffs inflation (lhs) Policy interest rate (rhs)
Lower foodstuffs inflation improves household expenditure capacity meanwhile lower interest rates give an incentive to both household and companies expenditure
Therefore, we expect a consolidation in economic growth in
2018, particularly in the second semester and 2019
Source: BBVA Research with data from DANE 17
GDP and internal demand (activity cycles) (%)
Growth acceleration is possible after a period of adjustment in household and companies balances
GDP and internal demand (forecast) (%)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Ma
r-1
7
Ju
n-1
7
Se
p-1
7
De
c-1
7
Ma
r-1
8
Ju
n-1
8
Sep-1
8
De
c-1
8
Ma
r-1
9
Ju
n-1
9
Se
p-1
9
De
c-1
9
GDP Internal Demand Semester average
GDP: 1,5
GDP: 2,0
GDP: 3,0
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17p 18p 19p
GDP Internal Demand
Positive gap betweenInternal Demand and GDP
Adjustmentin demand
Moderate growth
On the demand side, non-residential investment and
household consumption will contribute to GDP acceleration
Source: BBVA Research with data from DANE 18
Household consumption (annual growth, %)
Investment (annual growth, %)
2,1
0,3
1,6
3,44,0
2,7
3,5
9,9
3,1
0
2
4
6
8
10
12
Householdconsumption
Durable goods Others
2017 2018 2019
0,3
7,2
2,1
-11,4
3,4
6,3
4,2
-2,4
4,8 5,14,1
5,5
-15
-10
-5
0
5
10
Total Investment Civil works Equipment Residential
2017 2018 2019
Weak growth in the residential construction sector shadows over
the positive effect of higher oil prices and better global dynamic
Source: BBVA Research with data from DANE and Camacol 19
Residential sector GDP (Annual growth, %)
Housing sales and rotation index (Annual growth (%) and number of months to sell a house)
Some recovery of residential construction will be seen in the second semester of 2018, other commercial and office constructions will take longer to recover
-16
-12
-8
-4
0
4
8
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Ma
r-1
8
Jun-1
8
Sep-1
8
De
c-1
8
Ma
r-1
9
Jun-1
9
Sep-1
9
De
c-1
9
6,0
6,5
7,0
7,5
8,0
8,5
9,0
9,5
10,0
10,5
11,0
-40
-30
-20
-10
0
10
20
30
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Housing sales (lhs) No SIH Rotation (rhs)
On the supply side, most sectors show evidence of a slow
recovery
Source: BBVA Research with data from DANE 20
GDP by sectors growth forecast (Annual growth %)
Agriculture stabilizes slightly above its historic average, while mining 2018 recovery fades in 2019
-6
-4
-2
0
2
4
6
8
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
20
17
p
20
18
p
20
19
p
Mining Industry Construction Commerce,restaurants and
hotels
Utilities Transport andTelecoms
Social Services Finnancialservices
Agriculture
Average Growth2001-2017
GDP’s slow recovery will continue to have a negative impact
in the labor market
Unemployment rate for 13 cities (% of the labor force)
Source: BBVA Research with data from DANE 21
We expect the unemployment rate to deteriorate further in 2018, to 11,2% given a weak job creation
2018p: 11,2
2017p: 10,6
2009: 12,3
6
7
8
9
10
11
12
13
14
15
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
2014 2015 2016 2017 2009
Controlled inflation
and monetary
stimulus
Inflation will converge within
the target range after three
years of missed targets.
With this achievement, the
Central Bank will have some
space to lower interest rates
further
03
(p)
Inflation will converge swiftly towards the mid point of the
target range, stabilizing around this level in de mid term
Inflation (Annual variation, %)
Source: BBVA Research with data from DANE and BanRep 23
Weak demand and a stable exchange rate will continue playing an important role in de deceleration of the inflation
3,1
2,8
0
1
2
3
4
5
6
7
8
9
10
De
c-1
4
Fe
b-1
5
Apr-
15
Ju
n-1
5
Au
g-1
5
Oct-
15
De
c-1
5
Fe
b-1
6
Ap
r-1
6
Ju
n-1
6
Au
g-1
6
Oct-
16
De
c-1
6
Fe
b-1
7
Ap
r-1
7
Ju
n-1
7
Au
g-1
7
Oct-
17
De
c-1
7
Feb
-18
Ap
r-1
8
Ju
n-1
8
Au
g-1
8
Oct-
18
De
c-1
8
Fe
b-1
9
Ap
r-1
9
Ju
n-1
9
Au
g-1
9
Oct-
19
De
c-1
9
Headline Core Target range
The Central Bank, in a scenario of lower inflation and more
favorable external balances, will reduce interest rates to 4,0%
Policy rate (En of period rate)
Source: BBVA Research with data from BanRep 24
3,00
4,75
4,25
3,25
4,50
5,75
7,50
4,75
4,00 4,00
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
8,00
2010 2011 2012 2013 2014 2015 2016 2017 2018p 2019p
A great deal of the response by the Bank will be to neutralize
the descent of inflation and its effects on real rates
Policy rate with BBVA data (e.a., %)
Fuente: BBVA Research con datos BanRep y DANE 25
The significant decent in inflation, both core and headline, creates a pressure on the Central Bank to reduce interest rates to avoid reducing its current monetary stimulus
Policy rate with BanRep data (e.a., %)
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
2010 2011 2012 2013 2014 2015 2016 2017 2018p 2019p
Real policy rate (stable nominal rate)
Real policy rate (active policy)
Real natural rate range
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
2010 2011 2012 2013 2014 2015 2016 2017 2018p 2019p
Real policy rate (stable nominal rate)
Real policy rate (active policy)
Real natural rate range
Macroeconomic
Imbalances
The current account deficit
has been favored by a
higher oil price and better
exports. The fiscal balance
faces some challenges in
2019
04
The adjustment in demand and the higher oil prices allow a
positive adjustment in the current account deficit
Current account (USD billons)
Source: BBVA Research with data from BanRep 27
12,4
5,5
4,9
6,7 5,85,9
6,9 4,5
3,03,2 3,4
3,5
-10
-5
0
5
10
15
20
25
30
2014 2015 2016 2017p 2018p 2019p
Commercial balance Factor Rent Service Balance Transfers Total deficit FDI
Current accountdeficit as % of GDP
5,1% 6,4% 4,4% 3,6% 3,2% 3,4%
(p)
2750
2800
2850
2900
2950
3000
3050
3100
3150
Ju
n-1
6
Aug-1
6
Oct-
16
De
c-1
6
Fe
b-1
7
Ap
r-1
7
Ju
n-1
7
Au
g-1
7
Oct-
17
De
c-1
7
Fe
b-1
8
Apr-
18
Ju
n-1
8
Au
g-1
8
Oct-
18
De
c-1
8
Fe
b-1
9
Ap
r-1
9
Jun-1
9
Au
g-1
9
Oct-
19
De
c-1
9
The better external balance and higher oil price help maintain
the exchange rate with a reduced volatility
Exchange rate Pesos for a dollar
Source: BBVA Research with data from Bloomberg 28
P: BBVA projections, range simulations are not necessarily a forecast
Exchange rate: expected trajectory Pesos for a dollar
2361
2834 2838 2850
3267
3435
3093 3100
2000
2200
2400
2600
2800
3000
3200
3400
3600
2015 2016 2017 2018p
Max-Min Average end of period
-2,3 -2,4
-3,0
-4,0
-3,6
-3,1
-2,2
-4,5
-4,0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
2013 2014 2015 2016 2017p 2018p 2019p
(p)
Fiscal deficit trajectory required by the fiscal rule implies an
important reduction in expenditure and an improvement in
revenue Expenditure and revenue of the Central Government (% of GDP)
Source: BBVA Research with data from the Ministry of Finance and government projections 29
Fiscal balance (% of GDP)
The fiscal rule will be met in 2017 and 2018, despite lower than expected tax collections. For 2019 the pressure is greater and will require an active administration
by the government
19,2 19,1 19,218,9 19,0
18,317,8
16,916,7
16,2
14,9
15,715,3
15,6
10
12
14
16
18
20
22
2013 2014 2015 2016 2017p 2018p 2019p
Expenditure Revenue
Main messages
1. World growth shows robustness. Upward generalized revision in 2018 by areas, trending towards
stabilization in 2019. Latin American growth recovers. Growth is revised upwards by 0,1pp in 2018
and remains stable at 2,5% in 2019. Growth is supported mainly by the external sector and
investment.
2. Colombian recovery should consolidate in 2018, specially in the second half. Lower inflation
and interest rates and a more favorable global context support investment in equipment and
machinery and household expenditure in durable goods. For 2018 GDP growth would be 2,0% and
for 2019 3,0%.
3. Inflation will continue decelerating in 2018, achieving 3,1% in the year end. Exchange rate
stability and weakness in demand will allow inflation to decelerate in the first semester of 2018 and
stabilize around the mid-point of the target range. For 2019 inflation would close slightly below, at
2,8% The Central Bank will be able to reduce interest rates to 4,0% in the first semester.
Inflation behavior and its consolidation within the target range will allow the Bank to reduce its
reference rate in the first semester to maintain the real interest rate stable.
4. Structural imbalances, both external and fiscal, tend to improve. The demand adjustment and
higher oil prices allow for a reduction in the current account deficit to 3,2% in 2018, meanwhile the
fiscal deficit will meet the fiscal rule at 3,1% in 2018. For 2019 the government faces some
challenges in the fiscal front with the need to further reduce expenditure and improve revenue to
comply with the fiscal rule
This report has been produced by the Colombia Unit
Head Economist, Colombia Juana Téllez
+57 347 16 00
BBVA Research Jorge Sicilia Serrano
MACROECONOMIC ANALYSIS
Rafael Doménech [email protected]
Global Macroeconomic Scenarios
Miguel Jiménez
Global Financial Markets
Sonsoles Castillo
Long-Term Global Modelling
and Analysis
Julián Cubero
Innovation and Processes
Oscar de las Peñas
Financial Systems and Regulation
Santiago Fernández de Lis
International Coordination
Olga Cerqueira
Digital Regulation
Álvaro Martín
Regulation María Abascal
Financial Systems
Ana Rubio
Financial Inclusion
David Tuesta
Spain and Portugal
Miguel Cardoso
United States
Nathaniel Karp
Mexico
Carlos Serrano
Middle East, Asia and
Geopolitical
Álvaro Ortiz
Turkey
Álvaro Ortiz
Asia
Le Xia
South America
Juan Manuel Ruiz
Argentina
Gloria Sorensen
Chile
Jorge Selaive [email protected]
Colombia
Juana Téllez
Peru
Hugo Perea
Venezuela
Julio Pineda
Fabián García
+57 347 16 00
Mauricio Hernández
+57 347 16 00
María Claudia Llanes
+57 347 16 00
Alejandro Reyes
+57 347 16 00
Diego Felipe Suarez
+57 347 16 00
Intern
ANNEX:
Main macroeconomic variables
Table A1 Macroeconomic Forecasts
33
2014 2015 2016 2017 2018 2019
GDP (YoY, %) 4.4 3.1 2.0 1.5 2.0 3.0
Private consumption (YoY, %) 4.3 3.2 2.1 1.6 2.7 3.4
Public consumption (YoY, %) 4.7 5.0 1.8 3.3 2.3 2.8
Fixed investment (YoY, %) 9.8 1.8 -3.6 0.3 3.4 4.8
Inflation (%, YoY, eop) 3.7 6.8 5.7 4.3 3.2 2.8
Inflation (%, YoY, average) 2.9 5.0 7.5 4.3 3.0 2.7
Exchange rate (eop) 2,392 3,149 3,001 2,984 3,000 2,953
Devaluation (%, eop) 24.1 31.6 -4.7 -0.6 0.5 -1.6
Exchange rate (average) 2,001 2,742 3,055 2,951 2,981 3,002
Devaluation (%, average) 7.1 37.0 11.4 -3.4 1.0 0.7
BanRep interest rate (%, eop) 4.50 5.75 7.50 4.75 4.00 4.00
Deposit interest rate (%, eop) 4.3 5.2 6.9 5.3 4.4 4.4
Fiscal nalance (% of GDP) -2.4 -3.0 -4.0 -3.6 -3.1 -2.5
Current account balance (% of GDP) -5.2 -6.5 -4.4 -3.6 -3.2 -3.4
Unemployment rate (%, eop) 9.3 9.8 9.8 10.6 11.2 11.0
Main macroeconomic variables
Table A.2 Quarterly Macroeconomic Forecasts
34
GDP (%, YoY)
Inflation (%YoY, eop)
Exchange rate (vs. USD, eop)
BanRep rate (%, eop)
Q1 15 2.6 4.6 2.576 4.50
Q2 15 3.0 4.4 2.585 4.50
Q3 15 3.3 5.4 3.122 4.75
Q4 15 3.4 6.8 3.149 5.75
Q1 16 2.5 8.0 3.022 6.50
Q2 16 2.5 8.6 2.916 7.50
Q3 16 1.2 7.3 2.880 7.75
Q4 16 1.7 5.7 3.001 7.50
Q1 17 1.3 4.7 2.880 7.00
Q2 17 1.2 4.0 3.038 6.25
Q3 17 2.0 4.0 2.937 5.25
Q4 17 1.4 4.1 2.984 4.75
Q1 18 1.6 3.0 2.989 4.50
Q2 18 1.5 2.7 2.975 4.00
Q3 18 2.1 3.1 2.970 4.00
Q4 18 2.8 3.1 3.020 4.00
Q1 19 3.0 2.8 3.021 4.00
Q2 19 3.3 2.7 3.000 4.00
Q3 19 2.8 2.6 2.995 4.00
Q4 19 3.1 2.8 2.953 4.00
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Colombia Economic Outlook 2Q17
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