巴黎银行-新兴市场-宏观策略-哥伦比亚2019年展望：构筑势头-20190123-28页_1mb

COLOMBIA: 2019 OUTLOOK SUMMARY

Core Content

This report provides an outlook on Colombia's economic situation in 2019, focusing on GDP growth, inflation, fiscal policy, monetary conditions, and political dynamics. It highlights the key risks and opportunities facing the country and outlines the potential impact of reforms on the economy.

Main Points

GDP Growth

• Forecast: Colombia is expected to grow at 3.5% in 2019, up from 3.0% in 2018.
• Drivers: The recovery is broadening, with domestic demand and monetary policy support.
• Risks: High unemployment, trade tensions, and external account vulnerabilities could hinder growth.

Inflation

• Core Inflation: Reduced to 3.3% y/y for 2019, with inflationary pressures easing.
• Factors Affecting Inflation:
  • Lower tariffs and service adjustments in 2019.
  • A new CPI basket with reduced weight on food and increased weight on housing.
  • El Niño effects expected to peak in March/April but likely to be manageable.

Monetary Policy

• Rate Hikes: The central bank (BanRep) is expected to raise rates twice in 2019 (25bp each), bringing the end-of-year rate to 4.75%.
• Future Outlook: Tightening cycle may be needed in 2020 due to external account vulnerabilities.
• Policy Focus: Maintaining expansionary monetary policy to support growth, while keeping inflation near the target.

Fiscal Policy

• Primary Surplus: Expected to reach 0.5% of GDP in 2019.
• Fiscal Challenges: Compliance with fiscal targets remains difficult, and further reforms may be needed beyond 2019.
• Debt Levels: Net debt is projected to remain around 41% of GDP in 2019 and 2020.
• Reforms: Tax and pension reforms are expected to be enacted from 2020 onwards, with pension reform likely to be delayed to 2020.

Oil Sector

• Production: Expected to grow modestly, with a focus on attracting foreign investment.
• Uncertainty: Legal and regulatory challenges remain, particularly around referendums and tax simplification.
• Potential: Oil reserves could double with the adoption of fracking and new mining projects.

Political Dynamics

• Coalition Fragility: The Duque administration's coalition is weak and politically volatile.
• Local Elections: The October 2019 local elections will influence the political landscape, potentially shaping the 2022 presidential race.
• Key Players: Claudia López and Gustavo Petro are leading the opposition, while Alvaro Uribe's influence remains strong.

External Accounts

• Current Account Deficit: Expected to remain around -3.5% of GDP in 2019.
• Vulnerability: Dependent on oil prices, with a Brent price of USD50 potentially leading to a -4% deficit.
• Trade Deals: Integration with the Pacific Alliance and potential adhesion to the Transpacific Partnership could boost exports.

Currency Outlook

• USDCOP: Expected to trade around 3,021 in 2019, with long-term fair value at 2,946.
• Exchange Rate Pressures: Oil prices and BanRep's reserve accumulation are key factors affecting the currency.

Key Risks

Downside Risks

• Economic Growth: Low dynamism and lack of diversification.
• Consumer Confidence: Downtrend due to political uncertainty.
• Lending Policy: Conservative stance of retail banks.
• External Accounts: Vulnerable to oil price fluctuations.
• Fiscal Targets: Risk of missing revenue goals due to delays in tax reforms and potential budget slippage.

Upside Risks

• Tax Reform: Expected to boost investment and reduce fiscal burden.
• Monetary Policy: Easier conditions could support economic activity.
• Trade Deals: Improved integration may lead to higher export growth.
• Tourism: Continued growth due to improved infrastructure and international recognition.

Reforms and Policy Implications

• Pension Reform: Likely to be delayed to 2020 due to political challenges.
• Social Security System: Current subsidies disproportionately benefit the wealthy.
• Fiscal Rule: The fiscal rule may be relaxed in 2019, potentially leading to a fiscal slippage.

Conclusion

Colombia's 2019 outlook is cautiously optimistic, with a forecast of 3.5% GDP growth and 3.3% inflation. The economy is on a cyclical recovery, supported by monetary policy and potential tax reforms. However, external account vulnerabilities, political challenges, and the need for further fiscal and pension reforms remain key concerns. The 2019 local elections are expected to play a significant role in shaping the political environment for future reforms.