BMI View: Rising commodity prices, slowing inflation and a long-awaited peace deal between the government and FARC will provide greater reassurance to the Colombian consumer in 2017. Private consumption growth will continue to outp erform the region, although we caution that proposed tax reform measures present a possible downside risk.
Despite low commodity prices and an economic slowdown across Latin America, Colombian consumers have proven to be relatively resilient with private consumption growth significantly outpacing the regional average since 2014. We expect this to continue in 2017, as private consumption is forecast to expand 3.4% y-o-y compared to subdued 0.8% growth y-o-y for Latin America as a whole. While this marks a slight slowing from the previous year, broader economic indicators remain positive and lend further support to our favourable outlook for the consumer. Our Country Risk team forecast real GDP growth to register 2.9% in 2017, up from 2.5% in 2016.
|Consumption Growth To Moderate But Still Outperforming Region|
|Colombia Vs Latin America - Private Consumption, Real Growth % y-o-y|
|f = BMI forecast. Source: BMI, DANE|
Slowing inflation provides real cause for optimism for Colombian consumers in 2017. We believe inflationary pressures will ease considerably over coming quarters as recovering commodity prices create more favourable exchange rate dynamics, particularly as oil and coal account for over half of Colombia's total export values. As the peso appreciates over 2017, driven by a more upbeat extractives sector, imported consumer products will become more affordable causing inflation levels to moderate towards the 2-4% long-term target set by the Colombian Central Bank. We forecast inflation to come in at 3.8% y-o-y by end-2017, down from an estimated 7% y-o-y in 2016. Latest inflation figures support our view, with consumer price increases moderating to 6.5% in October 2016, the third consecutive month of slower growth and the lowest level since November 2015.
|Inflation To Slow Considerably Amid Oil Price Recovery|
|Consumer Price Inflation, % y-o-y, eop|
|f = BMI forecast. Source: BanRep, BMI|
In addition to moderating inflation, the Colombian labour market is also showing modest signs of improvement lending further support to consumer purchasing power. According to latest available figures, unemployment fell to 8.3% in October 2016, well-below the average 9.4% recorded for 2016 to date. We expect unemployment to continue to gradually tick downwards in 2017, accompanied by a return to positive wage growth as the country's economic growth picks up.
|Unemployment Ticking Downwards|
|Unemployment, % Of Labour Force|
|e/f = BMI estimate/forecast. Source: BMI, DANE|
Consumer confidence rallied over the second half of 2016, reflecting perceived improvements in Colombia's economic prospects, as well as expectations that a peace deal between the government and the FARC guerrilla movement would be approved before the ceasefire agreement expired at the end of the year (see ' Revised Peace Deal Will Be Ratified Before Year's End ', Nov 2016). The peace deal will not only represent a symbolic milestone in Colombian history, but will also likely lead to increased rural development over the longer term, feeding through to greater investment, job creation and household spending power for the country's poorest citizens.
|Confidence On The Rise|
|Consumer Confidence & Retail Sales|
|Source: Fedesarrollo, Bloomberg|
The potential introduction of new tax reform measures presents a downside risk to our positive consumer outlook. Our Country Risk team believe that the Colombian congress will approve tax reform measures before the end of 2016, enabling enhanced revenue collection to begin in 2017 (see ' Tax Reform To Address Revenue Shortfall ', Nov 2016). The overhaul is designed to boost revenue for the central government in an environment in which low oil prices have weighed on receipts. Proposed measures include increasing VAT to 19% from 16%, lowering the threshold on income tax and reinforcing collection via certain excise duties (including sugar-sweetened beverages, tobacco and fuels). While this has the potential to offset the benefits of lower inflation and weigh on consumer spending decisions, we believe the impact will be minimised by the likely watering down of the proposals amid resistance from the leading opposition party. With that said, we will be monitoring this closely over the coming quarter and, if necessary, adjust our view for the next quarter accordingly.
|Tax Reforms Pose Possible Downside Risk|
|Fiscal Revenue Vs Expenditure & Brent Crude Oil|
|f = BMI forecast. Source: National sources, BMI|
The Colombia Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Colombia Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Colombia to test other views - a key input for successful budgeting and strategic business planning in the Colombian retail market.
- Target business opportunities and risks in Colombia through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.