2013-10-29 16:29:25 - New Country Reports research report from Business Monitor International is now available from Fast Market Research
We believe that Colombia's economy will expand at robust growth rates in the coming years, characterised by improved macroeconomic conditions and an increasingly friendly business environment.
Private consumption, while moderating, will drive the majority of growth, although gross fixed capital formation (GFCF) will play an increasingly important role over the coming quarters.
The infrastructure, mining and hydrocarbons sectors are particularly well positioned for growth.
Major Forecast Changes
We have revised down our average exchange rate forecast from COP1,865/US$ to COP1,873/US$ in 2013 and from COP1,875/ US$ to COP1,880/US$ in 2014. The main factor underpinning our revision is the depreciatory impact of building expectations for a normalisation in monetary policy in the US, and ongoing intervention by the Colombian central bank.
our fiscal deficit forecast from 1.9% to 2.4% of GDP in 2013 and from 2.0% to 2.6% of GDP in 2014. The main factors underpinning our expectations for a wider budget shortfall are our June downgrade of real GDP growth and recently approved additional government stimulus.
Full Report Details at
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Key Risks To Outlook
Upside Risks: Elevated foreign investment inflows into the country following Colombia's upgrade to 'investment grade' by all three major ratings agencies could drive growth even faster than expected. In addition, a successful agreement during the ongoing peace negotiations between the government and the country's main left-wing insurgent group, the Fuerzas Armadas Revolucionarias de Colombia (Farc), would likely result in even greater foreign investment as risk perception improves.
Downside Risks: Ongoing labour strikes pose significant downside risks to our export and real GDP growth outlook. Indeed, workers demanding higher wages and greater government support have disrupted key exports such as coal, and if disputes are not addressed in the near term, they could have a significant negative impact on the economy.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Less Convinced About Santos' Re-Election
- We are becoming less convinced that Colombian President Juan Manuel Santos will succeed in getting re-elected in May 2014. Lack of tangible progress in the peace negotiations with the left-wing insurgent group, Fuerzas Armadas Revol ucionarias de Colombia (Farc), elevated social tensions amid labour protests across the country, and an opposition political movement by former President A lvaro Uribe, pose significant challenges to Santos' electoral bid.
TABLE: PRESIDENTIAL PRE-CANDIDATES FOR CENTRO DEMOCRATICO
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 the next decade and highlight three scenarios for change.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Weak Exports Pose Downside Risks To Growth
- We forecast Colombian real GDP to expand by 4.1% in 2013 and 4.3% in 2014, up from 4.0% in 2012. However, ongoing labour disruptions to exports pose downside risks to our medium term growth outlook. That said, we maintain a favourable long-term growth outlook, as investment into the infrastructure and oil and gas sectors, combined with a strengthening consumer, will drive robust real GDP growth in the coming years.
TABLE: GDP BY EXPENDITURE, REAL GROWTH %
Additional Stimulus To Widen Deficit In 2014
- We are revising our Colombia government fiscal deficit forecast from 1.9% to 2.4% of GDP in 2013 and from 2.0% to 2.6% of GDP in 2014. The main factors underpinning our expectations for a wider budget shortfall are our June downgrade of real GDP growth and recently approved additional government stimulus.
TABLE: FISCAL POLICY
Balance Of Payments
Labour Strikes Pose Downside Risks To Export Outlook
- We currently forecast Colombia's current account deficit to come in at 3.5% of GDP in 2013 and 2.8% in 2014, compared to a 3.1% shortfall in 2012.
TABLE: CURRENT ACCOUNT
Fragile Recovery And Low Inflation Underpin Rate Cut View
- We currently forecast Colombia's Banco Central de la Republica (BanRep) to cut its benchmark policy rate by 25 basis points to 3.00% by end-2013.
COP: Tapering And BanRep Intervention To Drive Weakness
TABLE: CURRENCY FORECAST
TABLE: EXCHANGE RATE
Regional Sovereign Risk Ratings
Re-Pricing Of Regional Credit Risk Has Further To Run
- A fundamental re-pricing of sovereign risk is underway in Latin America and the Caribbean, and we believe that further credit deterioration is likely. Nevertheless, selectivity will be key, as economies with more robust and sustainable growth models are likely to benefit from stronger investment flows and superior 'Ability To Pay' dynamics in the coming years.
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS - EVOLUTION OF ABILITY TO PAY
Full Table of Contents is available at:
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