Home Colombia Despite High Oil Prices, J.P. Morgan Sees Colombia’s CAD ‘Well Above’ 5% in 2022-2023

Despite High Oil Prices, J.P. Morgan Sees Colombia’s CAD ‘Well Above’ 5% in 2022-2023

Despite High Oil Prices, J.P. Morgan Sees Colombia’s CAD ‘Well Above’ 5% in 2022-2023
Cityscape, Cartagena de Indias, Colombia. Source: Zignox.com

NEW YORK — Since 2015, Colombia’s current account deficit has averaged 4.5% of the nation’s gross domestic product, but as the end of 2021 nears, the South America nation is about to see this indicator rising to 6% and staying close to this level in the next two years.

In a research note to investors, New York-based J.P. Morgan is calling attention on Colombia’s expanding current account deficit. “Despite the sharp recovery of oil prices in 2021, Colombia’s CAD is set to widen to 6% of GDP in our forecast, up from 3.3% in 2020, ” economist Ben Ramsey wrote in the report.

The 2021′ performance may represent a new era for Colombia, a country for which oil represents the single most important source of current account receipts, as well as FDI inflows. “We see the deficit remaining well above 5% of GDP going forward, absent much stronger oil production, or on the other hand, a marked slowdown in domestic demand,” Ramsey added in the report dated December 10.

In the third quarter, Colombia reported a current account deficit of 6.4%, the largest in more than five years, as oil export volumes declined, mitigating the gains from the price recovery of the commodity.

The bank projects a CAD of 5.8% of GDP in 2022, assuming oil prices move back into the USD80 level. “Consolidation of a lower oil price environment would spell an even higher CAD, or otherwise force a necessary downward correction in domestic demand and imports,” Ramsey said in the note. A chart in the report shows Colombia’s CAD at 5.4% of GDP in 2023.

Source: J.P. Morgan Economic Research Note December 10, 2021.
Source: J.P. Morgan Economic Research Note December 10, 2021.

“The bright spot is that Colombia’s non-traditional exports (manufactured goods and non-coffee agricultural products) have resumed growing solidly over the past year,” according to the report, and the overall trend has firmed since the oil price fall of 2015 coinciding with a more competitive real exchange rate. “Nonetheless, this positive dynamic has proven insufficient.”

J.P. Morgan expects Colombia’s GDP to expand 10% this year, compared with the severe 6.8% COVID-induced contraction endured in 2020. In its most recent economic regional outlook for Latin America and the Caribbean, the International Monetary Fund projects an economic growth of 7.6% for 2021 followed by a 3.8% expansion in 2022.

West Texas Intermediate crude price has risen almost 50% this year to an average of UDD72/barrel compared with USD48/barrel in 2020, according to data compiled by Macrotrends.net. Oil prices fell early on Friday and were on track for a weekly loss as the fast-spreading Omicron COVID variant increased concerns about a potential hit to oil demand, while the hawkish Fed stance of tightening monetary policy next year started to lead to anxiety about economic growth, Oilprice.com reported on website.

Also relevant:
IMF Sees Latin America GDP Growing 6.3% This Year; Says Recovery Still Far From Complete
* As Latin America’s Inflation Rises, J.P. Morgan Sees Mounting Pressure to Raise Rates

To contact journalist of this story:
Email: jearrioja@zignox.com


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