colombia: growth strengthens during second half of 2013

Growth strengthens during second half of 2013 Colombia Outlook

BBVA Research Colombia

August 2013

Main messages

• Growth decelerated in emerging economies, but a gradual recovery of developed economies consolidates

•

not compromise our year end growth forecast of 4.1% of GDP. For 2014 we expect a more robust growth rate of 4.7%

• Inflation will be slightly below the mid point of the target range in

2013 (2.7%) and slightly above in 2014 (3.2%). We do not anticipate a change in the monetary stance until the second quarter of 2014

• Uncertainty regarding the timing of the withdrawl of QE3 in the US will continue to generate volatilty in local markets

Lower growth in emerging markets and uncertainty regarding withdrawl of quantitative easing in the U.S.

Net flows to EM bond and equity funds (Mln dollars, four-week average) Source: EPFR and BBVA Research

withdrawl was greater than expected

Normalization of global financial conditions, with higher interest rates and lower demand for

emerging markets

Lower liquidity will have greater impact on emerging markets

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

ene-0

8

abr-

08

jul-08

oct-

08

ene-0

9

abr-

09

jul-09

oct-

09

ene-1

0

abr-

10

jul-10

oct-

10

ene-1

1

abr-

11

jul-11

oct-

11

ene-1

2

abr-

12

jul-12

oct-

12

ene-1

3

abr-

13

jul-13

Global economy with cyclical weakness, above all in EM • We have reduced our world GDP growth forecast due to a less favorable global

economic scenario.

GDP Growth (Percentage)

Source: BBVA Research

* BBVA Eagles: Emerging and Growth-Leading Economies. China, India, Brazil, Indonesia, Korea, Russia, Turkey, Mexico, Taiwan.

EM have experienced a more intense deceleration of growth

Global financial tightening due to US slow recovery

In 2014 we expect a 3.8% world GDP growth

3,2 3,1

3,8

2,21,8

2,3

-0,5 -0,4

1,0

5,15,2

5,6

-2,0

0,0

2,0

4,0

6,0

8,0

-2,0

0,0

2,0

4,0

6,0

8,0

12

13

14

12

13

14

12

13

14

12

13

14

Mundo EEUU Zona Euro BBVA Eagles

ago-13 may-13

Colombia: economy will strengthen for the remainder of 2013 and 2014 even though demand remains weak

Net flows towards Colombia remained robust • Domestic financial markets reacted to the anticipated change in US monetary

stance. Expectations of lower global liquidity weakened COP and increased risk premia.

Net capital flows (annual change, %)

Source: BanRep and BBVA Research

Financial volatility due to global uncertainty, with limited impact on fundamentals

Period was faced with slackness even though heightened sovereign debt cost

Weakeing of COP in line with the region regardless of pension funds regulatory noise -300

0

300

600

900

1200

1500

1800

-300

0

300

600

900

1200

1500

1800

mar-

09

jul-09

nov-0

9

mar-

10

jul-10

nov-1

0

mar-

11

jul-11

nov-1

1

mar-

12

jul-12

nov-1

2

mar-

13

jul-13

IED Inversión en portafolio Préstamos externos

Heightened construction growth (17,5% annual) held back deceleration • Domestic demand was weaker than expected due to a stronger deceleration of

private consumtion and a fall in non-residential investment. A corresponding adjustment in imports was observed.

GDP and domestic demand (annual change, %)

Source: DANE and BBVA Research

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10

mar-

09

jun-0

9

sep

-09

dic

-09

mar-

10

jun-1

0

sep

-10

dic

-10

mar-

11

jun-1

1

sep

-11

dic

-11

mar-

12

jun-1

2

sep

-12

dic

-12

mar-

13

Demanda interna PIB

Annual variation

4Q12 1Q13 Expected?

Private consumption

4,6 3,2

Private investment

5,6 3,8

Public investment

4,1 8,4

Exports 1,4 -1,2

Stronger leading indicators during second quarter of 2013 • Gradual recovery of private consumption and slow growth of non-residential

investment. • Industry supported by foreign and domestic demand.

Available leading indicators (Seasonally adjusted,

Mar10=100) Source: DANE and BBVA Research

-12.2

2.8 1.2

-9.5

-3.5

16.0

6.0

1.6

-15

-10

-5

0

5

10

15

20

Minería yagro

Industria Otras Total

1T13 2T13

Exports by product type Annual variation, %

90

100

110

120

130

140

150

160

170

90

100

110

120

130

140

150

160

170

mar-

10

may-1

0

jul-10

sep

-10

nov-1

0

ene-1

1

mar-

11

may-1

1

jul-11

sep

-11

nov-1

1

ene-1

2

mar-

12

may-1

2

jul-12

sep

-12

nov-1

2

ene-1

3

mar-

13

may-1

3

Ventas minoristas Exportaciones

Licencias de construcción Demanda de energía de la industria

Confidence recovery anticipates a better second half of the year • Households and businesses regained optimism about economic actvity for the

upcomming six months.

Household and business confidence (Seasonally adjusted) Source: Fedesarrollo and BBVA Research

-25

-15

-5

5

15

25

35

-25

-15

-5

5

15

25

35

mar-

08

jun-0

8

sep

-08

dic

-08

mar-

09

jun-0

9

sep

-09

dic

-09

mar-

10

jun-1

0

sep

-10

dic

-10

mar-

11

jun-1

1

sep

-11

dic

-11

mar-

12

jun-1

2

sep

-12

dic

-12

mar-

13

jun-1

3

Comerciantes Consumidores Industriales

In June, households revealed a high disposition to purchase durable goods and housing

Consumer confidence reached its minimum in March, anticipating a recovery.

Industry has gradually reduced inventory since February

Further consolidation of employment will sustain recovery in private consumption

Página 11

• Employment increased during 2Q13, but at a lower pace than in 2012. • Construction dynamism and industry recovery in 2H13 will allow employment to improve

Formal and informal employment (Number of people, in thousands)


3.400

3.800

4.200

4.600

5.000

5.400

3.400

3.800

4.200

4.600

5.000

5.400

Jun

-07

Se

p-0

7

Dic

-07

Mar-

08

Jun

-08

Se

p-0

8

Dic

-08

Mar-

09

Jun

-09

Se

p-0

9

Dic

-09

Mar-

10

Jun

-10

Se

p-1

0

Dic

-10

Mar-

11

Jun

-11

Se

p-1

1

Dic

-11

Mar-

12

Jun

-12

Se

p-1

2

Dic

-12

Mar-

13

Jun

-13

Asalariados No asalariados

Heightend growth during second half of 2013

Página 12

IGAE (principal component of leading indicators)

Source: BBVA Research

• Favorable statistical base and improved economic dynamics will be determining factors: construction, private consumption and exports.

• Economic activity index IGAE suggests a recovery for 2Q13, consistent with a year end 3.3% annual GDP growth.

GDP growth forecast (annual and quarterly variation)


-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

jun-0

1

dic

-01

jun-0

2

dic

-02

jun-0

3

dic

-03

jun-0

4

dic

-04

jun-0

5

dic

-05

jun-0

6

dic

-06

jun-0

7

dic

-07

jun-0

8

dic

-08

jun-0

9

dic

-09

jun-1

0

dic

-10

jun-1

1

dic

-11

jun-1

2

dic

-12

jun-1

3

PIB sin obras civiles IGAE

5.4

4.7

2.83.1

2.83.3

4.95.3

5.75.2

4.5

3.3

0.6

1.2

-0.4

1.7

0.3

1.61.2

2.1

0.81.1

0.5

1.0

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

mar-

12

jun-1

2

sep

-12

dic

-12

mar-

13

jun-1

3

sep

-13

dic

-13

mar-

14

jun-1

4

sep

-14

dic

-14

Variación anual Variación trimestral

Growth for 2013 remains at 4.1% and we revised our 2014 forecast to 4.7%

Página 13

• Economic growth in 2013 will be less sustained by domestic demand. • Domestic demand will grow by 3.8% in 2013, below GDP growth rate for the first time

since 2009.

GDP growth forecast and adjustments (annual variation and basis points change) Source: DANE and BBVA Research Construction, housing and civil

works will support 1.2 pp of GDP growth rate in 2013

We have revised downwards private consumption growth, but maintain its recovery trend since 2Q13

Imports will adjust due to lower domestic demand

Exports will have positive dynamics, above that of GDP growth from 2H13 onwards

-0.1

-0.2 -0.4

0.3

0.1

4.1

4.7

0.0

1.0

2.0

3.0

4.0

5.0

-0.6

-0.3

0.0

0.3

0.6

0.9

2013 2014

Perspectiva externa (-) Perspectiva interna (-)

Efecto de la política fiscal (+) Previsión (eje derecho)

We do not anticipate any change in monetary conditions until 2Q14

Consumer price inflation (percentage change, %)


Inflation will end 2013 in 2.7%

In 2014 inflation will reach slightly above the 3% mid-range target,

ending in 3.2%

• Inflation will increase gradually during the second half of the year, but well within the target range for 2013 and 2014.

• Low base effect and expected private consumption recovery will rise inflation in 2014. Constrained domestic demand has allowed for limited COP depreciation passthrough.

Inflation remains well within the target range

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

sep

-10

dic

-10

mar-

11

jun-1

1

sep

-11

dic

-11

mar-

12

jun-1

2

sep

-12

dic

-12

mar-

13

jun-1

3

sep

-13

dic

-13

mar-

14

jun-1

4

sep

-14

dic

-14

Rango Inflación objetivo

Nominal intervention rate (%)

Source: BanRep, DANE and BBVA Research

• We expect a first interest rate hike by the central bank in April of 2014, under limited inflation pressure.

• Expansive monetary stance will remain until 2015, before the gradual closure of the product gap.

Reference interest rate ermains expansive (3,25% vs. 5,25% neutral). Central bank remains moderately optimistic about growth prospects

Expansive monetary stance will remain during the end of the year

3,00%

3,50%

4,00%

4,50%

5,00%

5,50%

6,00%

jul-13

sep

-13

nov-1

3

ene-1

4

mar-

14

may-1

4

jul-14

sep

-14

nov-1

4

ene-1

5

mar-

15

may-1

5

jul-15

sep

-15

nov-1

5

BBVAe IBR Analistas

Central Bank will extend foreign exchange purchase program • We anticipate USD 7bn of international reserves accumulation in 2013, thereby

remaining USD 1bn for the 4th quarter • FX intervention will extend into 2014, with an estimated space of USD 6.4bn

BanRep foreign exchange market intervention and expected

reserve accumulation (annual variation, %) Source: BanRep and BBVA Research

International reserves remain below

level (11% vs. 15% optimum)

Balance of payment equilibrium level anticipates international reserves accumulation during 2014

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0

1000

2000

3000

4000

5000

6000

7000

8000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Acumulación observada (Julio) Compromiso Septiembre Proyección 2013

Continued uncertainty regarding Fed QE withdrwal will increase COP volatility • COP forecast is contingent upon external monetary conditions. • COP appreciation is expected in 2014 due to economic recovery and interest rate

hikes. • Normalization of external monetary conditions will depreciate COP.

Average exchange rate and annual variation (pesos per dollar, %) Source: BanRep and BBVA Research

1.899

1.848

1.798

1.855 1.868

3,10,7

-15

-10

-5

0

5

10

15

1.500

1.550

1.600

1.650

1.700

1.750

1.800

1.850

1.900

1.950

2.000

2010 2011 2012 2013 2014

TRM promedio Variación anual promedio (eje der.)

Depreciación

Apreciación

Main messages

• Growth decelerated in emerging economies, but a gradual recovery of developed economies consolidates

• economy slowed during the first quarter, however it did

not comprmise our year end growth forecast of 4.1% of GDP. For 2014 we expect a more robust growth rate of 4.7%

• Inflation will be slightly below the mid point of the target range in

2013 (2.7%) and slightly above in 2014 (3.2%). We do not anticipate a change in the monetary stance until the second quarter of 2014

• Uncertainty regarding the timing of the withdrawl of QE3 in the US will continue to generate volatilty in local markets

Forecasts C olombia

201 1 201 2 201 3 201 4 201 5 201 6

GDP (% y/y) 6, 7 4, 0 4, 1 4, 7 5, 1 5, 4

P rivate Consumption (% y/y) 6, 0 4, 7 3, 5 4, 1 4, 8 5, 1

P ublic Consumption (% y/y) 3, 6 5, 1 4, 6 4, 8 3, 5 3, 9

P rivate Investment (% y/y) 1 7, 1 8, 0 4, 7 7, 7 6, 9 6, 7

Residential Investment (% y/y) 3, 7 5, 6 8, 5 7, 1 5, 5 5, 6

P ublic Investment (% y/y) 22, 8 1 , 5 9, 3 1 0, 3 9, 1 7, 0

Inflation (% y/y, eop) 3, 7 2, 4 2, 7 3, 2 3, 0 3, 0

E xchange Rate (vs. US D, eop) 1 934 1 794 1 885 1 869 1 890 1 952

P olicy Interest Rate (%, eop) 4, 75 4, 25 3, 25 4, 25 5, 25 5, 25

P olicy Interest Rate (%, average) 4, 25 4, 88 3, 25 3, 81 5, 1 9 5, 25

DTF (%, eop) 5, 1 2 5, 22 3, 74 4, 58 5, 73 5, 86

DTF(%, average) 4, 21 5, 34 4, 1 5 4, 05 5, 40 5, 80

Fiscal Balance (% GDP ) -2, 9 -2, 3 -2, 6 -2, 6 -2, 0 -1 , 9

Current Account Balance (% GDP ) -2, 9 -3, 2 -3, 1 -2, 7 -2, 7 -2, 9

S ource: DANE, S uperfinanciera, Banco de la República, Ministerio de Hacienda and BBVA Research

Thanks

Contacts Colombia

Juana Téllez Chief Economist [email protected]

www.bbvaresearch.com

Equipo

Mauricio Hernández [email protected]

Santiago Muñoz [email protected]

Julio César Suárez [email protected]

Interns

Natalia Montes Nicolás Ronderos

[email protected] [email protected]

María Claudia Llanes [email protected]

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colombia: growth strengthens during second half of 2013

Economy & Finance