Monday, 16 February 2009

Colombian Exports Plunge. Declining Demand, Deteriorating External Sector Dynamics Fan Calls for Larger Rate Cuts

Exports tumbled 27 percent in November. Traditional exports (such as oil, nickel, coffee and coal) dropped 37 percent while non-traditional exports declined 19 percent from Nov. 2007. On the other hand, imports grew 5.4 percent in November, which means they are losing momentum. The trade deficit widened to $816 million in Nov., compared with a $190 million surplus in the year-earlier period. But, the good news are here, exports grew 29 percent in the first 11 months, outpacing the 21 percent increase in imports -- as a result the year-to-date trade surplus was $377 million (better than the $1.35 billion deficit recorded in the January-November 2007 period.) Going forward, there should be a marked deceleration of exports as commodity prices will stay low and global demand will be sluggish. The Venezuela economic downturn will prove a headache for Colombia, we believe. On the other hand, the sharp deceleration of domestic demand and a weakening peso will likely hinder import growth.

The data will spur calls from a group of dovish central bankers to implement interest-rate cuts bigger than the 50 basis point ones that we have seen in recent weeks. The current macro outlook requires more determination by the central bank. Banco de la República will soon speed up its actions and start cutting rates by at least 75 basis points in the upcoming weeks. The tasa repo should end the second half close to 6 percent or less.

Just to finish, Goldman Sachs Group Inc. economist Alberto Ramos says this about the attitude of central banks in the region that failed to assume a more proactive stance towards the crisis:

''The market has not rewarded the moderation/caution shown by the Colombian central bank. This caution, perhaps excessive, is not contributing to allaying fears of a rapidly widening output gap, and this has translated into a weaker currency. The dollar has gained more than 13 percent against the Colombian peso since the end of 2008. In contrast, other more activist central banks (e.g., Chile and Brazil) have been rewarded with stronger or stable currencies. For instance, the Central Bank of Chile surprised the market in both January and February by delivering rate cuts of 100 basis points and 250 basis points, respectively, and the currency has gained 7 percent since the end of 2008. In fact, the Chilean peso has strengthened 2.5 percent against the dollar today (Feb. 12) despite the much higher than expected 250 basis-point rate cut enacted yesterday. That is, in recent weeks regional currencies have been trading less on domestic-foreign interest rate differentials but more on measures of output gap. The weaker the outlook for real activity the weaker currencies have traded.´´
Good lesson to Colombian policymakers.


  1. This Website "Market Memorandum" is truly amazing. We were in Great Need of something like this. I used to waste hours looking at information from Governmental sources like the "DANE".

    The economic situation is very grave now, four years ago I was studying the Dynamics of Textiles and Apparel and I was astonished to see how those "poor" Asian countries were better sellers and more dynamic than Colombia.

    I have had to become more friendly to the Free Trade Agreement with the USA, as I discover that the situation is very grave and that we need it. Three or four years ago we could have the comfort and luxury of delaying discussions.

    There will be negative effects but the positive effects of a FTA with USA will outweight the drawbacks and negative impacts.

    Thanks Heaven, Colombia is not in the Demagoguery of other Latin Countries.

    Vicente Duque

  2. Hey Vicente,

    First let me thank you for the comment and for reading this blog. Thanks a lot for the compliments, and I hope MM comes up to your expectations ... Indeed the situation is quite worrisome, especially for a country like Colombia, which two biggest trading partners are the U.S. and Venezuela ...

    The FTA with the U.S. is a good step for Colombia in my view .. The country has been preparing well, has a good solid programme for infrastructure and cometitiveness and surely will help some of our exports maintain their customer free status in the largest consumer market in the planet.

    About demagoguery, I have to say I disagree. All this Uribe re-election issue is nothing but a joke and it is in our hands to prevent this to happen ... Policies will coninue but in some sense a change is necessary and impotrant ...

    Hope you keep reading us ... Thanks a lot,