macroeconomic outlook for colombia...2019/10/17 · macroeconomic outlook for colombia carolina...
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Macroeconomic Outlook for ColombiaCarolina SotoMember of the Board of DirectorsOctober 2019
1* The opinions presented here are personal and do not represent the official position of the Banco de la República or its Board of Directors.
18/1
0/2
019
2
Co
nte
nts External Conditions
Growth, inflation and policy responses
Risks
Financial system
• International financial conditions have improved and expectations of further monetary easing in advanced economies have increased.
Source: Bloomberg and Consensus Forecast.3
0
50
100
150
200
250
300
350
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19
5-Year CDS
Peru Colombia Mexico Chile
1.00%
1.75%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2014 2015 2016 2017 2018 2019 2020
Fed funds rate upper bound and forecasts
Observed
Futures
ConsensusForecast
• Despite the lower risk premia and the expectations of lower fed funds rate, EM currencies have depreciated.
Source: Bloomberg. 4
80
85
90
95
100
105
110
115
120
125
130
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19
Jan
20
18
= 1
00
Exchange rates in LATAM
Chile Peru Colombia Brasil Mexico
• Growth has deteriorated and a deceleration of the global economy is now a source of concern.
• In this scenario, the growth of Colombia’s trading partners is expected to slow down.
¹ USA, Euro area, China, Brazil, Ecuador, Peru, Mexico, Chile. Weighted by non-traditional exports. * Non-traditional exports exclude coffee, oil and derivatives, coal, ferronickel, gold,
bananas and flowers. For 2019 first semester YoY growth.
Source: Banco de la República and Departamento Administrativo Nacional de Estadística - DANE
5
2.1%2.4%
1.8% 1.9%2.2%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020 2021
Average Growth of Colombia’s Main Trading Partners
Observed Mar. 19 forecast Current forecast Growth of Non-traditional exports* (RHS)
• Trade tensions might be driving down industrial production and global trade, which implies a downside risk for the economic activity in Colombia and other EMEs.
Source: CPB – Bureau for Economic Policy Analysis and Banco de la República
*Annual growth rate for the quarterly moving average. 6
-2%
0%
2%
4%
6%
8%
jul.-11 jul.-12 jul.-13 jul.-14 jul.-15 jul.-16 jul.-17 jul.-18 jul.-19
International trade volume – Annual growth rate*
Imports Exports
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-30%
-20%
-10%
0%
10%
20%
30%
Colombian Exports and Global Trade
Colombian Total Exports Volume -Annual Growth (RHS)
Global Exports Volume - Annual Growth
• Lower growth and the uncertainty about the global economy could affect commodity prices and the level of Colombia’s terms of trade.
Source: U.S Energy Information Administration (EIA)
7• This in turn could have negative impact on investment and the fiscal accounts.
40
50
60
70
80
90
100
Oct-18 Oct-19
0
20
40
60
80
100
120
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19
Oil Prices (Brent, WTI)
WTI Brent
USD
/Bar
rel
18/1
0/2
019
8
Co
nte
nts External Conditions
Growth, inflation and policy responses
Risks
Financial system
9
• There has been a persistent negative output gap that is expected to close over the next two years.
-3
-2
-1
0
1
2
3
2016 2017 2018 2019 2020
%
90% 60% 30%
Source: Banco de la República.
a/ The graph shows the symmetric intervals at 30%, 60% y 90% confidence levels for the output gap path over an 8 month horizon. The intervals are built from the forecast errors of the central scenario.
b/ The results assume an active monetary policy in which the monetary policy rate is adjusted to reach the inflation target.
Fan Chart for the Output Gap
10
• Growth is expected to increase in 2019 on the back of a dynamic private domestic demand.
• The growth figure for Q2 was surprisingly positive after a disappointing Q1. For 2019, BanRep estimates a growth rate of 3,2%.
Source: DANE and Banco de la República.
4.9%
3.4%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2012 2013 2014 2015 2016 2017 2018 2019
GDP and Domestic Demand(Annual Growth Rate)
Domestic Demand GDP
• Public consumption at the regional level has been robust in 2019. For the central government however, some weakness has been observed.
Source: DANE. Calculations by Banco de la República 11
• Investment remains strong, except for the housing sector.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Inve
stm
ent
Gro
ss f
ixed
cap
ital
fo
rmat
ion
Ho
usi
ng
Oth
er b
uild
ings
Mac
hin
ery
and
Eq
uip
men
t
Investment and its Components(Annual Growth Rate)
2017 I 2017 II 2017 III 2017 IV 2018 I 2018 II 2018 III 2018 IV 2019 I 2019 II
*Seasonally adjusted. Source: DANE. 12
• Private consumption is growing fast.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
I II III IV I II III IV I II
2017 2018 2019
%
Household Consumption – Annual Growth Rate
• Internal demand and consumption in Colombia remain strong compared to other countries in the region.
Source: Central Banks. For Chile, household consumption includes NPISH. 13
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Internal Demand – Real Annual Growth Rate
Peru Colombia Chile Mexico Brasil 0%
1%
2%
3%
4%
5%
6%
mar.-17 jun.-17 sep.-17 dic.-17 mar.-18 jun.-18 sep.-18 dic.-18 mar.-19 jun.-19
Household consumption – Real Annual Growth Rate
Peru Colombia Chile Mexico Brasil
• This is consistent with a strong growth of consumer loans.
Source: Central Banks, statistics offices and financial supervisors.
14
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Consumer Loan Portfolio - Real Annual Growth Rate
Peru Colombia Chile
Source: Banco de la República and DANE
• Imports have increased due to higher domestic demand. As a result, the current account deficit is widening.
15
-2.66
-1.98
-3.05 -2.93-3.07
-3.27
-5.18
-6.30
-4.24
-3.29
-3.94
-25,000
-20,000
-15,000
-10,000
-5,000
0
-7
-6
-5
-4
-3
-2
-1
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
USD
mill
ion
% o
f G
DP
Current Account Balance
USD million (RHS)
% of GDP
• Inflation expectations are close to target over the policy horizon.
Source: DANE and Banco de la República – Monthly Survey of Economic Expectations
16• We are facing a transitory shock, but inflation should converge to the 3% target in 2020.
3.35%3.25%
3.82%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18 Apr-19 Sep-19
Inflation and Inflation Expectations
Average of 1-year Ahead Expectations
Average of 2-year Ahead Expectations
Headline Inflation
Source: DANE and the IMF-Regional Economic Outlook 2016. * The bars show the cumulative response of consumer prices two years after a 1 percent increase in the nominal effective Exchange rate. Pass-through estimates for individual countries are obtained from country-specific regressions while average regional pass-through correspond to panel model estimates. “Implied pass-through” corresponds to the product of the cumulative exchange rate pass-through to import prices after two years and the country-specific “import-content” of domestic consumption. “Import content” is the proportion of households’ consumptions that is made of imports.
• Recent episodes have shown evidence of low pass-through in Colombia when compared to the region.
• Inflation should remain subdued if pass-through remains low. Hence, the recent depreciation of the COP is not expected to entail a significant risk for the achievement of the inflation target.
17
Exchange Rate Pass-Through Estimates*
101.3
102.9
118.8
102.2
100
105
110
115
120
125
100
110
120
130
140
150
160
170
180
190
sep
-04
mar
-05
sep
-05
mar
-06
sep
-06
mar
-07
sep
-07
mar
-08
sep
-08
mar
-09
sep
-09
mar
-10
sep
-10
mar
-11
sep
-11
mar
-12
sep
-12
mar
-13
sep
-13
mar
-14
sep
-14
mar
-15
sep
-15
mar
-16
sep
-16
mar
-17
sep
-17
mar
-18
sep
-18
mar
-19
sep
-19
Exchange Rate and Tradable CPI
Exchange Rate (monthly average)
Tradable CPI excluding Food andRegulated Items
Source: Banco de la República.
18
• In this scenario monetary policy has remained moderately expansionary, supporting a gradual closing of the negative output gap.
Source: Banco de la República.
4.50%
7.75%
4.25%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Policy Rate
-3%
-2%
-1%
0%
1%
2%
3%
4%
Real interest rate gap
18/1
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019
19
Co
nte
nts External Conditions
Growth, inflation and policy responses
Risks
Financial system
• The rebound in domestic demand plus a weaker external demand is causing a widening of the current account deficit.
Source: IMF. For Colombia: BanRep’s estimates.
20
-6.4%
-4.3%
-3.3%
-3.8%
-4,5%
-7%
-5%
-3%
-1%
1%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(forecast)
Current Account (% of GDP)
Chile Colombia
Mexico Peru
• But the current account deficit is being financed mostly by FDI.
Source: Banco de la República. 21
-1
1
3
5
7
9
11
2011 2012 2013 2014 2015 2016 2017 2018 2019 (jan - jun)
% o
fG
DP
Investment Flows and Current Account Deficit
Foreign Direct Investment Gross Inflows
Portfolio Investment Gross Inflows
Other Investment Gross Inflows
Current Account Deficit
• Net foreign assets without the stock of net FDI are substantially larger.
Source: Banco de la República. 22
-60
-50
-40
-30
-20
-10
00
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% o
fG
DP
Net Foreign Assets as Percentage of GDP
NFA excluding FDI* Total NFA
23
• And better international financial conditions should facilitate the financing of the current account deficit, albeit in a more volatile external environment.
*The index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the economy (E), policy (P) and uncertainty (U). In other words, a national EPU index value is proportional to the share of own-country newspaper articles that discuss economic policy uncertainty in that month. The GEPU Index value for each month as the GDP-weighted average of 18 national EPU index values, Davis, Steven J., 2016. “An Index of Global Economic Policy Uncertainty,” Macroeconomic Review
Source: Bloomberg
0
5
10
15
20
25
30
35
40
45
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
VIX Index
180 per. media móvil…180-Day moving average
0
50
100
150
200
250
300
350
Index of Global Economic Policy Uncertainty*
Source: IMF and Banco de la República. The ARA Metric is updated yearly, the reserves quarterly.24
• Furthermore, the country holds adequate external liquidity buffers.
Adequate level suggested by the IMF
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
International Reserves - Percentage of IMF's ARA Metric
Reserves Flexible Credit Line
Source: Ministry of Finance – Medium Term fiscal Framework
• The government’s medium term fiscal framework envisions a declining path for the debt
ratio. This forecast is subject to global and local uncertainty.
25
38.836.7
34.6
37.1
40.2
4546
47
50.6 50.6 49.748.3
46.945.4
44.142.9
41.640.3
39.1 38.2
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Central Government's Net Debt and Forecast under the Fiscal Rule(% of GDP)
18/1
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26
Co
nte
nts External Conditions
Growth, inflation and policy responses
Risks
Financial system
¹ 30-Day LCR is the ratio of high-quality liquid assets to total net cash outflows over the next 30 calendar days. In March 2019 the Liquidity Coverage Ratio (LCR) was adjusted to comply with Basel III. The indicator shown was adjusted to account for that change. Source: Superintendencia Financiera de Colombia. Calculations by Banco de la República.
27
• The financial system remains liquid, profitable and well capitalized.• Convergence to the Basel III standard is underway.
15.11%
15.89%
8%
10%
12%
14%
16%
18%
20%
Total Solvency Ratio(Tier II)
Banks
Total Depository Institutions
Minimum Requirement
233.87%
100.00%
80%
120%
160%
200%
240%
280%
30-Day Liquidity Coverage Ratio¹ (LCR)
Depository Institution´s LCR
Minimum Requirement
• While currency mismatches remain low in both the real and financial sector.
28*For the categories: debt due to suppliers in foreign currency, foreign currency leasing and “other”, the information is insufficient to determine if firms hedge these debts.
Source: Banco de la República, Financial Superintendency and DANE
31.60
5.77
2.48
3.821.18
1.572.14
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018
Debt of the corporate sector by currency and hedge(% of GDP)
Local Currency Debt Exporters Debt Non-exporters Debt with FDI
Non-exporters Debt with FDI (Unhedged) External suppliers in foreign currency External Leasing in foreign currency
Other
29
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