Colombia Business Forecast Report Q1 2013


January 3, 2013
53 Pages - SKU: BMI4938397
License type:
Table of Contents Related Reports
Countries covered: Colombia

Core Views:

We believe that Colombia's economy will expand by above 4.0%growth rates in the coming years, characterised by improvedmacroeconomic conditions and an increasingly friendly businessenvironment.

Private consumption, while moderating, will drive the majority ofgrowth, although gross fixed capital formation (GFCF) will play anincreasingly important role over the coming quarters.

The infrastructure, mining and hydrocarbons sectors are particularlywell positioned for growth.

Major Forecast Changes:

While we momentarily revised up our end-2013 central bank policyrate forecast from 4.25% to 4.50%, the central bank's decision tocut its rate by 25 basis points (bps) to 4.50% in November 2012encouraged us to re-adopt our previously held forecast. Indeed, withstrong indications that Colombia's central bank will remain dovish,we forecast a 25 bps cut to bring the rate down from 4.50% to 4.25%in 2013.

Key Risks To Outlook:

Upside Risks: Elevated foreign investment inflows into the countryfollowing Colombia’s upgrade to ‘investment grade’ by all three majorratings agencies could drive growth even faster than expected.Downside Risks: A further deterioration in global growth could placedownward pressure on energy prices, dampening demand for Colombianexports and reducing foreign direct investment (FDI).


Executive Summary
Core Views:
Major Forecast Changes:
Key Risks To Outlook:
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
FARC Deal No Guarantee For Peace
Ongoing signs of distrust between the Colombian government and the FARC confirm our view that the current peace negotiations
between both sides are unlikely to result in a definitive end to violence. Even if a peace accord were to be reached, there is no
guarantee that FARC members would unanimously halt their operations, many of which are likely to be viewed as too lucrative to be
abandoned .
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Many Structural Challenges Ahead
While Colombia's long-term political outlook is set to remain relatively stable compared with its neighbours, we identify several massive
political challenges for the government over our 10-year forecast period and highlight three scenarios for change.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Robust Growth To Continue In 2013
We believe that strong investment into Colombia’s hydrocarbons and infrastructure sectors, combined with resilient private consumption,
will drive robust economic expansion in 2013. We therefore forecast real GDP growth to come in at 4.3% in 2013, down slightly from an
estimated 4.4% in 2012, due to a moderation in export growth.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Tax Reform To Lead Towards Fiscal Consolidation
We believe that a pending tax reform bill in Colombia, which is likely to be approved by the legislature by early 2013, will strengthen
the government’s long-term fiscal position. Indeed, under the new proposal, the tax burden of hiring would be reduced, which could
potentially increase formal employment and therefore expand the tax base.
TABLE: TAX REFORM HIGHLIGHTS
TABLE: FISCAL POLICY
Balance of Payments
Growing Oil Sector Will Strengthen Trade Surplus
Improvements in Colombia's oil sector, which is rapidly becoming a top performer in Latin America, will benefit the country's balance of
payment position over the coming years through robust export growth and rising foreign investment. However, a growing reliance on the
oil sector poses long-term challenges to Colombia, undermining the competitiveness of the manufacturing sector.
TABLE: CURRENT ACCOUNT
Monetary Policy
Central Bank To Remain Dovish In 2013
Following a surprise 25bps cut by Colombia’s central bank in November 2012, bringing the policy rate down to 4.50%, we believe
monetary authorities will maintain a dovish stance in 2013. We therefore forecast another 25 bps cut to bring the policy rate to 4.25% in
2013, as a weak external environment and the ongoing moderation in private consumption will prompt further monetary easing. 19
TABLE: MONETARY POLICY
Exchange Rate Policy
COP: Limited Weakness In 2013
TABLE: EXCHANGE RATE
Regional: Sovereign Risk Ratings
Global Headwinds Further Erode Creditworthiness
Even after a wave of downgrades to our sovereign risk ratings for Latin America in our previous (August 2012) update, further
macroeconomic forecast revisions have seen us undertake another round of downward revisions. This comes as more negative
economic data suggest that macroeconomic headwinds have become more intense than we had previously assumed. Most notably, our
latest revisions to the ‘willingness to pay’ component of our rating have seen Argentina slip to the bottom of our Latin America ratings
table, suggesting that default risks are likely to become increasingly priced into debt instruments.
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS – EVOLUTION OF ABILITY TO PAY
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS – EVOLUTION OF WILLINGNESS TO PAY
Chapter 3: 10-Year Forecast
The Colombian Economy To 2021
Sustainable And Sturdy Growth
Business-friendly policies and a steadily improving security situation will help Colombia achieve sustainable levels of strong real GDP
growth, which we forecast will average 4.4% y-o-y over the period 2012-2021. A surge in fixed investment will catalyse such growth over
the coming years, and we expect consumption to follow suit and remain the main driver of the Colombian growth story.
TABLE: LONG-TERM MACROECONOMIC FORECAST
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
Infrastructure
TABLE: LATIN AMERICA ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
Chapter 5: Key Sectors
Oil & Gas
TABLE: COLOMBIA OIL & GAS–HISTORICAL DATA AND FORECASTS, 2009-2016
Infrastructure
TABLE: COLOMBIA CONSTRUCTION AND INFRASTRUCTURE INDUSTRY DATA, 2009 - 2016
TABLE: COLOMBIA ENERGY AND UTILITIES INFRASTRUCTURE INDUSTRY DATA, 2008 - 2016
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: TELECOMS SECTOR KEY INDICATORS
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS
Chapter 6: BMI Global Assumptions
Global Outlook
Downward Revisions, But Core Views Remain Unchanged
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST

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