• Colombia: Economic activity signals continued growth; imports off historical high

COLOMBIA: ECONOMIC ACTIVITY SIGNALS CONTINUED GROWTH; IMPORTS OFF HISTORICAL HIGH

I. Economic activity remains on expansion path with construction gaining momentum

On Friday, June 17, the Colombian Statistics Agency (DANE) released the Economic Activity Indicator for April 2022 (ISE), which expanded 12% y/y, above the Bloomberg market consensus of 9.6% y/y. ISE serves as the main proxy for GDP and in April most sectors of the economy were up, especially the secondary and service sectors, which were driven by higher demand for sectors such as commerce, transportation and hotels, and food services.

Economic activity expanded by 1.8% m/m in seasonally-adjusted terms (chart 1), surpassing the level of expansion in the last quarter of 2021. On a year-to-date basis, the economy expanded 9.2%. Despite the positive surprises, a gap remains in the recovery of employment. In fact, according to the index of employed personnel, there is still 2.19 ppts, to reach the levels of employment seen in February 2020 pre-pandemic period.

 April’s ISE results sent several positive signals (chart 2):


  • Primary activities (13% of the economy) contracted by -2.0% y/y, a rate lower than in March (-5.5% y/y). Moreover, primary activities expanded 2.6% m/m (seasonally adjusted) in April. The agricultural sector contracted by -1.1% y/y, while mining and oil production showed a timid expansion of 1.4 y/y. Coal output was down. Agriculture presented mixed effects, with some crops subtracting from growth, such as coffee production, while flowers and bananas contributed positively. It is a sector to watch owing to high input prices and logistical problems that can affect costs, which would harm production in the near future. 
  • Secondary sectors (17% of the economy) rose 11.9% y/y and expanded 2.9% m/m. Manufacturing production remains strong in lines related to reopening and mobility, increasing 12.4%y/y. Construction is finally providing positive impulse, expanding 10% y/y, which is explained by increased activity across the sector. In fact, civil works experienced a growth of 6.5% y/y, which provides a solid foundation for growth to the whole economy.
  • Activities related to services (70% of the economy) increased by 14.4% y/y (0.8% m/m). This outcome is explained by commerce, transport and restaurants that expanded by 2.3% m/m, on the back of the Easter holiday. Despite the high prices, households increased their consumption, though some deceleration is likely in the coming months owing to the constant pressures on inflation.

Overall, the April result showed further consolidation of the economic recovery. We highlight the increased activity in the construction sector, especially civil works, which should provide broader based growth to the economy. We expect this sub-sector to continue to gain momentum. The services sector should remain strong, with some moderation in the second semester of the year as continued upward pressures on inflation elicits a stronger monetary adjustment that could restrict consumer credit. Moreover, job creation showed improvement, and the gap between employment and the recovery in output seems to be closing. Given these results, we have raised our forecast of GDP growth for 2022 from 5.8% to 6.3%.

II. Imports off historical high level as trade deficit narrows

April’s imports data, released by DANE on Friday, June 17, came in at USD 6.39 bn (CIF terms), up 36.1% y/y (chart 3), but down from the previous month's historical high. The monthly trade deficit stood at USD 485.4 mn, lower than the April 2021 figure of USD 1.43 bn. In the year to date, the trade deficit stands at USD 4.80 bn, 9.8% above from the same period of 2021. However, exports are now increasing at a higher rate than imports owing to the effect of high commodity prices and should contribute to a lower external deficit hoping forward.


April’s imports decelerated from the previous month largely on lower purchases of raw materials by the industrial sector, which could point to future supply shortages that might affect domestic industries. Manufacturing imports grew by 28.9% y/y accounting for the largest contribution to import growth, while agriculture-related imports increased by 37.2% y/y and mining-related imports grew by 101.8% y/y. 

From the perspective of imports by use, the three major segments showed strong increases compared with April 2021.

  • Consumption-goods imports increased by +25.2% y/y and stood at USD 1.26 bn. Both durable and non-durable goods imports slowed relative to previous months, growing by +25.8% y/y and +24.7% y/y respectively. In the case of non-durable goods, food purchases (+35.3% y/y) led the gains again. Durable goods imports were driven by vehicle purchases (+41.9% y/y). 
  • Raw-materials imports grew by 43.3% y/y to USD 3.4 bn and remained the main contributor to the overall increase in imports. Industry imports (+24.5% y/y) reflected higher purchases of chemical products (+17.8% y/y). Fuel products (+122.9% y/y) contributed significantly to higher imports and reached the highest level since 2014. Both items are subject to high international prices as well as resilient demand. 
  • Capital-goods imports were up by 31.6% y/y to USD 1.73 bn, easing from the previous month’s figure of USD2.12 bn. Purchases of investment-related goods led the gains (+23.3% y/y), which is still a positive sign for investment, followed by transport equipment (+70.2% y/y). It is worth noting, however, that on a monthly basis capital goods purchases contracted, signalling possible shortages in the supply of some items.

All in all, imports in April remained high, pointing to robust domestic demand, and an ongoing recovery in investment. In monthly terms, imports moderated from the historical high in March, which could be pointing to difficulties in the supply of some raw materials and capital goods

We expect the current account deficit would stand at USD 17 bn equivalent to 5% of GDP in 2022 however, it would be due to a better denominator (GDP). In terms of financing, the prevalence of high capital goods imports points to better FDI. However, we highlight that the external deficit remains one of the main issues of concern in Colombia’s macroeconomic metrics.

—Sergio Olarte, Maria (Tatiana) Mejía & Jackeline Piraján

DISCLAIMER

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.

Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.

Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.

This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.

™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.

Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.