Persistent weakness in benchmark crude prices will continue to undermine real export growth and fixed investment, helping to underpin our view for structurally slower growth over the next several years.
We also anticipate a slowdown in real private consumption growth as consumers are hit hard by high inflation, rising interest rates and a significant sell-off in the exchange rate.
Hydrocarbon sector weakness will also weigh on Colombia's balance of payments position. Faltering oil prices and production will temper investment into Colombia and cool export growth.
Meanwhile, slower oil production growth combined with increasing pressure to spend on social programmes will feed through to fiscal slippage in the years ahead. While the country is well positioned to withstand the storm, with a relatively low external debt burden and a sizeable stock of foreign reserves, the potential for deterioration in the country's macroeconomic buffers will temper investor perceptions of Colombia's sovereign creditworthiness.
Although the government and Fuerzas Armadas Revolucionarias de Colombia are on the cusp of a peace accord, the splintered nature of the left-wing insurgent group will ensure that the deal will only slowly improve the security environment.
Major Forecast Changes:
Given still accelerating headline price growth, we have revised up our 2016 average inflation forecast to 6.9%, from 5.8% previously. We have also revised up our end-2016 policy rate forecast to 7.00%, from 6.50% previously, as Colombia's Banco de la Republica has hiked more aggressively than we anticipated in recent months.
A failure to continue improving its business environment could prolong Colombia's growth slowdown, as investors look to more favourable destinations for investment in light of the country's high wage and non-wage costs and insufficient infrastructure. We believe this will be headwind to growth in the medium term, but it could become a more structural, long-term issue if not addressed in the next few years.
|e/f = BMI estimate/forecast; Source: National Sources/BMI|
|Real GDP growth, % y-o-y||4.4||3.1||2.5||2.9|
|Nominal GDP, USDbn||378.3||291.7||289.6||323.4|
|Consumer price inflation, % y-o-y, eop||3.7||6.8||4.6||3.5|
|Exchange rate COP/USD, eop||2,376.51||3,174.50||2,900.00||2,850.00|
|Budget balance, % of GDP||-2.6||-3.1||-3.9||-3.7|
|Current account balance, % of GDP||-5.2||-6.5||-5.8||-5.6|
Assess your risk exposure in Colombia with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Colombia with confidence.
Your subscription service includes:
- Delivery of the report in print and PDF
- Online access for 12 months
- The functionality to translate your online report into your choice of 10 languages - Arabic, Chinese, French, German, Italian, Japanese, Korean, Portuguese, Russian and Spanish
- The ability to export data and graphs from the online report directly into your workflow
- The support of a dedicated Account Manager to answer any questions you might have about your subscription
- Access to our team of leading analysts who will be happy to answer any questions you might have about the data and forecasts included in this report