巴黎银行-新兴市场-宏观策略-哥伦比亚深度宏观追踪-20190614-30页.pdf

Please refer to important information at theend of this reportCOLOMBIA MACRO TRACKER:SIX ANSWERS TO SIX TOUGH QUESTIONSJune 2019Joel Virgen Rojano,Economist|BNP Paribas Securities Corp.DEEP DIVE2COLOMBIA OUTLOOK UPDATEGDP real growth(y/y)Q1 GDP surprised to the downside,revealing a sharp contraction in construction.Recent activity data suggest growth momentum is at a slower pace.Inflation(y/y,eop)CPI prints have so far been in line with our expectations this year,while inflation expectations remain close to observed prints.Basic inflation is already below 3%target.BanRep rate(y/y,eop)A wider than previously anticipated economic slackness will likely delay the beginning of BanReps normalization cycle from Q4 2019 to Q1 2020,we think.We now see a shorter cycle(50bp in total hikes in the cycle).Current Account(%of GDP)A weaker Q1 GDP growth was met with a sizable trade deficit,explaining the wider than expected Q1 CA deficit despite a modest improvement in the terms of trade.We now expect a wider but manageable CA deficit.201920203.5%3.0%3.8%3.5%3.3%3.3%3.4%3.4%4.50%4.25%5.25%4.75%-3.5%-4.2%-3.2%-3.5%=Source:BNP ParibasCOLOMBIA MACRO TRACKER:SIX ANSWERS TO SIX TOUGH QUESTIONS3IS COLOMBIA IMMUNE TO A GLOBAL DECELERATION?1IS ECONOMIC SLACKNESS NARROWING?2MONETARY POLICY:NORMALIZATION NOW?3IS A BALANCE-OF-PAYMENTS CRISIS AROUND THE CORNER?4TO DOWNGRADE OR NOT TO DOWNGRADE?56FISCAL RULE:IS THIS TIME FOR REAL?41IS COLOMBIA IMMUNE TO A GLOBAL DECELERATION?NO,IT IS NOT.GLOBAL CONDITIONS MATTERBNPP EM GDP growth vs exports growth trackers(%q/q s.a.growth)Sources:Macrobond,WTO,BNP ParibasBNPP EM ex-China exports growth tracker vsChinese imports(%y/y growth,3mma)From our EM outlook Q3 2019 Differentiation mattersOur trade monitor suggests exports from EMs have yet to recover,posing a downside bias for economic activity.Our tracker points to a 0.3pp deceleration in EMs quarterly GDP growth in Q1.5IS COLOMBIA IMMUNE TO A GLOBAL DECELERATION?TRADE DISPUTES MATTERWeight of the US and China in each countrys total exports(value)3334568891212131314161721223278111131321379152712273415818620%10%20%30%40%50%60%70%80%90%100%Czech RepublicPolandRomaniaHungaryRussiaTurkeySaudi ArabiaArgentinaSouth AfricaIndonesiaSouth KoreaThailandBrazilChileMalaysiaIndiaChinaVietnamColombiaMexicoWeight,USOthersWeight,ChinaSources:UNCTAD(right-side),WTO,BNP ParibasFrom our EM outlook Q3 2019 Differentiation mattersDifferentiation is key as impact could vary across EMs,depending on their export profiles.6IS COLOMBIA IMMUNE TO A GLOBAL DECELERATION?Historical US dollar cyclesSources:UNCTAD(right-side),WTO,BNP ParibasUSD real effective exchange rate,CPI deflator(3mma,1980=100)US dollar cycles come in waves;we think the USD has peaked.A strong correlation between USD and commodity prices is relevant for EM:weaker USD,higher commodity prices.From our EM outlook Q3 2019 Differentiation matters7IS COLOMBIA IMMUNE TO A GLOBAL DECELERATION?BNPP SOVEREIGN RATINGS INDEXSources:S&P,BNP ParibasBNPP EM sovereign ratings index (3mma)vs EM FX index(RHS)Emerging markets sovereign ratings have broadly shown a steady improvement.From our EM outlook Q3 2019 Differentiation matters82IS ECONOMIC SLACKNESS NORROWING?NO,IT IS NOT.OUTPUT GAP REMAINS WIDEThe downside surprise to Q1 GDP growth interrupted a gradual narrowing of economic slackness.We do not see the output gap closing this year.Losing some momentum in Q1Sources:DANE,BNPP forecasts.Sources:DANE,BNPP forecasts.hence,output gap remains relatively wide.9IS ECONOMIC SLACKNESS NORROWING?-5-3-1135792012201320142015201620172018Gov consumptionPriv ConsumptionExportsInvestmentImportsInv/EAGROWTH CONTRIBUTIONS(pp)Sources:DANE,BNPP forecasts.10IS ECONOMIC SLACKNESS NORROWING?Business climateSources:Fedesarrollo,BNPP forecasts.Sources:BanRep Survey,BNPP forecasts.Consumer confidenceSources:Fedesarrollo,BNPP forecasts.Growth expectationsCapacity utilizationSources:ANDI,BNPP forecasts.PercentPercentANIMAL SPIRITSConfidence and climate are generally favorable for robust economic growth.113MONETARY POLICY:NORMALIZATION NOW?NO,NOT JUST YET.Sources:BanRep Survey,BNPP forecasts.Sources:Dane,BNPP forecasts.Inflation expectationsInflation performance%,y/y%,y/yHeadline inflation remains slightly above the 3%target.Yet,core inflation is already below the target.Short-and medium-term inflation expectations are still above 3%.We do not think BanRep sees the pattern of convergence compromised by the recent(transitory)rebound in the headline gauge.12MONETARY POLICY:NORMALIZATION NOW?Sources:Dane,BNPPs estimations.Long-term(8 yr)Medium-term(1-8yr)Short-term(1yr)Percent02468101290950005-2-10123000510150.850.900.951.001.051.101.15000510151919Decomposition of inflation patterns into three different frequencies reveals that the downward trend in inflation is not just a cyclical phenomenon.13MONETARY POLICY:NORMALIZATION NOW?Sources:IMF,MinHacienda,DNP,World Bank,BNP Paribas1.0%BanRep policy rateMonetary policy conditions remain slightly accommodative.BanRep has of late adopted a neutral tone.4.25%14MONETARY POLICY:NORMALIZATION NOW?Our estimation of BanReps reaction function suggests a later start to policy normalization,given our updated estimates for(wider)output gap.We now expect the central bank to start its hiking cycle in Q1 2020 instead of Q4 2019 and for the cycle to be shorter(50bp in total).2.003.004.005.006.007.008.009.001011121314151617183.504.004.505.005.506.006.507.007.50201720182019BNPP Forecasts within an 80%statistical confidence intervalSee BanRep seen hiking,later than soonerSources:Dane,BNPPs estimations.154IS A BALANCE-OF-PAYMENTS CRISIS AROUND THE CORNER?-8,000-6,000-4,000-2,00002,0002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018TransfersFactorial paymentsTrade balance(goods and services)Current AccountSources:BanRep,BNPPs estimations.NO,IT IS NOT THE CASE,BUT CA DEFICIT IS A REASON TO REMAIN CAUTIOUSCOP mn16IS A BALANCE-OF-PAYMENTS CRISIS AROUND THE CORNER?Sources:IMF WEO 2019(2018 data),BNPP forecasts.-15-10-5051015-15-10-5051015Government broad balanceCurrent account balanceColombiaHungaryIndonesiaKazakhstanPhilippines“BBB”ClubColombias CA deficit is not yet an outlier but credit rating pairs bring forward a relative disadvantage for Colombia.17IS A BALANCE-OF-PAYMENTS CRISIS AROUND THE CORNER?Sources:BanRep,Bloomberg,BNPP forecasts.05001,0001,5002,0002,5003,0003,5004,0004,50020122013201420152016201720182019USD mnOil-relatedCoalCoffeeIron-nickelTraditional exportsOil-related exports are the key to a widening trade balance and hence CA deterioration.185FISCAL RULE:IS THIS TIME FOR REAL?YES,IT IS LIKELY TO BE.ALL EYES ARE ON MEETING TARGETS-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.01415161718192021222324252627282930Structural balanceTotal Balance MFMP 2018Total Balance Update(March 2019)Source:Minimum salary commission.-0.11-0.05-0.08-0.14-0.020.000.230.110.090.050.050.120.210.10Lower tax on fixed income operationExemptions for farmers/creative ind.Exemptions for capital goodsLower corporate taxGradual elimination of the presumptive taxSpecial tax regime for SMEsHigher income tax for top bracket individualsSpecial tax on sugary drinks and beer4%surtax on the financial sector7.5%tax on companies outbound remittances15%tax on dividendsTax repatriationTax on properties1%tax on assets(above COP 5bn)?The 2018 tax reform came short of expectations;insufficient in solving structural issues hampering tax collection.?However,we think it will be enough to meet 2019 fiscal targets,complemented by budget cuts(0.4pp of GDP).?The reform is seen as growth positive,given the lower corporate tax and exemptions on capital goods.FISCAL RULE:IS THIS TIME FOR REAL?FUNDING LAW ENOUGH FOR 201919Funding law main items approved by the Senate and expected fiscal impact in 2019Sources:Finance Ministry,Senate of Colombia,BNP ParibasStructural reforms are needed to contain spending pressuresSources:Finance Ministry,Senate of Colombia,BNP ParibasFunding law:Estimated net revenue impact of+0.7pp of GDP,in 2019206TO DOWNGRADE OR NOT TO DOWNGRADE?NO,WE DO NOT EXPECT A DONWGRATE TO TAKE PLAE THIS YEAR.13149101112131415Jan-93Nov-93Sep-94Jul-95May-96Mar-97Jan-98Nov-98Sep-99Jul-00May-01Mar-02Jan-03Nov-03Sep-04Jul-05May-06Mar-07Jan-08Nov-08Sep-09Jul-10May-11Mar-12Jan-13Nov-13Sep-14Jul-15May-16Mar-17Jan-18Nov-18MoodysS&PFitchSources:Fitch,Moodys,S&P,BNPPs forecasts.B1 B+Ba3 BB-Ba2 BBBa1 BB+Baa3 BBB-Baa2 BBBBaa1 BBB+Investment gradeS&P Baa3 BBB-Moodys,FitchBaa2 BBBMoodys and Fitch have already adjusted their outlooks(Baa2 and BBB,respectively)and we do not expect S&P to downgrade.21TO DOWNGRADE OR NOT TO DOWNGRADE?KEY WORDS IN PRESS RELEASESSources:Moodys,Fitch,BNPP forecasts.Moodys(24 May)Fitch(24 May)Stable to NegativeNegative to StableTO DOWNGRADE OR NOT TO DOWNGRADE?BNPP SOVEREIGN RATINGS MODEL22Sources:IMF,MinHacienda,DNP,World Bank,BNP ParibasFunding law:Estimated positive net impact of 0.7pp of GDP,in 2019Compliance with fiscal rule?Tax tweaks in 2019 and 2020 to comply with target?Government keeps a lid on spending?Pension overhaul delays by one-year?GDP growth recovers modestly?External accounts do not stray too far from sustainable?levels Structural pension and tax reforms.expanding base,diversification Tax reform that expands taxing basePension overhaul softens age-related liabilitiesMicroeconomic reforms help boost productivity?More formalisationof the labour market?Diversification of the economy12BNPPs ratings modelLoosening of the fiscal rule/non-compliance,failureto pass reforms?Government loosens fiscal rule substantially?Lack of additional reform increases deficits?Revenue growth continues to lag expenditures?More timid growth recovery?Brent plummets to below USD50 per barrel3BBBStructural:3.9Flexibility/performance:2.9BB+Structural:4.1Flexibility/performance:3.4BBB+Structural:3.7Flexibility/performance:2.6Expected outcome23TO DOWNGRADE OR NOT TO DOWNGRADE?CREDIT RATING TRIGGERSNEGATIVEPUBLIC FINANCESWeaker fiscal out-turns that lead to increasing debt and interest burden or affect credibility of long-term fiscal consolidation path (Fitch)Slippage in fiscal policy execution or setback in prudent fiscal management by the administration or Congress(S&P)Higher net external indebtedness or deterioration in access to external market financing(S&P)Absence of credible medium-term fiscal consolidation plan or lack of support in Congress for such plan(Moodys)ECOMOMYPersistence of low growth(Fitch)Declining trend growth prospects(S&P)Growth rates remain below potential(Moodys)EXTERNALLarge external imbalances(Fitch)POSITIVEPUBLIC FINANCESFiscal consolidation consistent with improved debt trajectory(Fitch)Policy measures that prevent further erosion of fiscal indicators and government debt metrics(Moodys)Robust fiscal revenue and faster fiscal consolidation(S&P)ECONOMYHigher growth(Fitch)Income gap reduction(Fitch)Sustained pickup in economic growth(Moodys)POLICIESImproved governance through better security(Fitch)EXTERNALSovereigns external weakness recedes more markedly(S&P)Fitch:14 Nov,4 Dec 2018Moodys:21 Nov 2019(April-November 2019)S&P:Last 14 Dec 2018(two-year horizon)Sources:Fitch,Moodys,S&P,BNPPs forecasts.24Jos Carlos FariaHead of Latam Economics(55 11)3841-Gustavo ArrudaBrazil(55 11)3841-OUR TEAM|LATAM ECONOMIC RESEARCHMarcelo CarvalhoHead of Emerging Markets Research(44 207)595-8854 Florencia VazquezArgentina and Chile(54 11)4875-Joel Virgen RojanoMexico and Colombia(212)841-|DATA WATCH11/06/201925DISCLAIMERThis document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from their interactionwith sales and trading which could affect the objectivity of this report.This document is non-independent research for the purpose of the UK Financial Conduct Authority rules.For the purposes of the 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