Colombian Economic Outlook

Transcription

1 Colombian Economic Outlook October 2007

2 AGENDA 1. WHERE ARE WE? 2. INTERNATIONAL SCENARIO 3. INCREASE IN FOREIGN INVESTMENT 4. WHAT CAN BE EXPECTED 1

3 AGENDA 1. WHERE ARE WE? 2. INTERNATIONAL SCENARIO 3. INCREASE IN FOREIGN INVESTMENT 4. WHAT CAN BE EXPECTED 2

4 Colombia s economy continues to grow at an accelerated pace In Q2 the economy expanded at an annual rate of 6.97% GDP Real Annual Growth Source: DANE 3

5 Private investment and consumption have been the main growth drivers GDP - Supply Side GDP - Demand Side GDP 7.5% Financial Services 10.2% Transport 11.2% Retail 11.2% Construction 16.0% Industry 13.3% Electricity 2.8% Mines 2.1% 2007q2 Agriculture 3.0% % 5% 10% 15% 20% Annual Change GDP Imports Exports Fixed Investment Government Consump. Expenditures Personal Consump. Expenditures 0.6% 7.5% 6.5% 7.9% 18.6% 24.9% 0% 10% 20% 30% Annual Change 2007q Source: DANE 4

6 Investment dynamism anticipates the sustainability of the economic growth trend Contribution to GDP growth p.p. 12% Net Exports 10% 8% Fixed Investment Consumption Expenditures 5.6% 5.8% 6% 2.6% 3.4% 4% 2% 4.0% 4.0% 4.6% 5.1% 0% -1.7% -2% -2.7% -3.4% -3.5% -4% Nowadays private investment participates with more than 24% of GDP. At the beginning of this decade it had a participation of only 13% of GDP. Investment growth benefits installed capacity and potential economic growth -6% * Source: DANE, Corficolombiana 5

7 At the beginning of the year, consumption trend ended up on inflationary pressures Annual Inflation Inflation tradable and non tradable goods 7 6% 6 5% 4% % % 3% 4 2% Nontradable 3 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 1% Jun-04 Tradable Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 The last inflation figures vanished market s concerns However, analysts already think that the Central Bank is not going to accomplish its inflation target Source: DANE, Banco de la República 6

8 Inflationary pressures were also influenced by food prices Food Prices - YoY 7% Inflation (total and excluding food prices) 11% 6% 9% 5% Total 7% 5% 4% 3% Excluding food Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Pressures generated by food prices are usually temporary Source: DANE, Corficolombiana 7

9 In this context, the Central Bank has tightened its monetary policy 14 Central Bank Intervention Rate bps 6 4 Jun-01 Mar-02 Nov-02 Jul-03 Mar-04 Nov-04 Jul-05 Mar-06 Nov-06 Jul-07 Source: Banco de la República 8

10 This monetary policy has generated an increase of local interest rates 90 days Certificates of Deposit Rate Consumer Credit Rates (%) 15% 13% 11% 8.31% 9% 7% 5% 24% Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 sep-98 mar-99 sep-99 mar-00 sep-00 mar-01 sep-01 mar-02 sep-02 mar-03 sep-03 mar-04 sep-04 mar-05 sep-05 mar-06 sep-06 mar-07 sep-07 However, local interest rates are still registering historical low levels Source: Banco de la República 9

11 Under low risk aversion, an increase of interest rate spread favors peso appreciation The FED s 50 bps rate cut increased the spread to almost 4.3%. Annual Depreciation 50% 40% 30% 20% 10% 0% -10% -20% Depreciation and Interest Rate Spread (Col-EEUU) Depreciation Diferencia Spread 30% 25% 20% 15% 10% 5% Rate Gap (Col-EEUU) -30% 0% May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 Source: Reuters, Corficolombiana 10

12 AGENDA 1. WHERE ARE WE? 2. INTERNATIONAL SCENARIO 3. INCREASE IN FOREIGN INVESTMENT 4. WHAT CAN BE EXPECTED 11

13 During the first years of this decade developed countries maintained low interest rates 7 Fed funds % Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Under a high liquidity scenario, investment in emerging markets became attractive Source: FED

14 The interest in emerging markets deepened as a result of lower risk perception EMBI Sep-00 Jun-01 Mar-02 Dec-02 Sep-03 Jun-04 Mar-05 Dec-05 Sep-06 Jun-07 Col Latin Brasil Perú Source: JPMorgan 13

15 Particularly, Colombia s risk perception has improved substantially Relative EMBI EMBI+Col/EMB BI+Latam Due to: - Better macroeconomic conditions - Advances in democratic security - Improvements in public fiscal accounts 0.4 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Source: JPMorgan, Corficolombiana 14

16 Over the past two years the Consolidated Government has almost achieved fiscal equilibrium 0.0 Fiscal Balance Source: Ministry of Finance 15

17 Advances in macroeconomic variables supported recent sovereign rating upgrades Historic Sovereign Rating Colombia is only one notch below the investment grade Source: Ministry of Finance 16

18 AGENDA 1. WHERE ARE WE? 2. INTERNATIONAL SCENARIO 3. INCREASE IN FOREIGN INVESTMENT 4. WHAT CAN BE EXPECTED 17

19 Colombia stands out among other Latin American countries regarding capital flows Net Foreign Investment (GDP %) Latin America f f: forecast Fuente: Institute of International Finance 18

20 Specific sectors have become attractive for long term investments 12,000 Foreign Direct Investment US$ MM 10,000 8,000 6,000 4,000 2,000 - Financial Sector Energy Infrastructure Source: Banco de la República 19

21 Regarding short term investment, overreacting local markets have become attractive for speculative capitals Volatility Latin American Currencies Short Term Foreign Investment 0.6% 0.3% 0.0% -0.3% US$ MM M % ene-06 mar-06 may-06 jul-06 sep-06 nov-06 ene-07 mar-07 may-07 jul-07 sep * MXN PEN COP Brazil * 1H 07 Source: Banco de la República, Corficolombiana 20

22 AGENDA 1. WHERE ARE WE? 2. INTERNATIONAL SCENARIO 3. INCREASE IN FOREIGN INVESTMENT 4. WHAT CAN BE EXPECTED 21

23 A turn in external conditions may result in foreign investment relying upon: Foreign Exchange risk Economic Conditions Fiscal Policy Inflation Stability Less obstacles for foreign investment Regulation of the financial sector Government intervention Political Conditions Property rights Transparency in contractual relations Democratic Security 22

24 Other determining factors make Colombia a suitable place for investing Change in Ranking on the ease of doing business In the last year, Colombia was among the 10 countries that made more changes towards facilitating business Source: Doing Business Database 23

25 Foreign direct investment forecast: FDI in Colombia (USD$ MM) * 2008* Energy 1,125 1,802 2,535 4,325 Mines 2,157 1, ,700 Financial Sector Telecom 1,011 1, Others 5,852 1,353 3,001 1,550 Net FDI 5,593 5,365 6,374 7,228 FDI (GDP %) *ANIF Forecast Source: ANIF 24

26 FDI will be supported by a positive macroeconomic outlook (1/2) GDP Real Annual Growth Forecast Source: DANE, Corficolombiana 25

27 FDI will be supported by a positive macroeconomic outlook (2/2) 4.8% Inflation forecast 4.6% 4.4% 4.2% 4.0% 3.8% 3.6% Source: Corficolombiana 26

28 Corficolombiana s economic perspectives are: Corficolombiana s Forecasts Inflation (CPI Annual Change) 4.7% 4.2% 4.0% 4.0% Exchange Rate (TRM) 2,329 2,399 2,435 2,472 Nominal Devaluation 4.0% 3.0% 1.5% 1.5% Interest Rate (DTF) 8.1% 9.3% 8.5% 8.5% Economic Growth (GDP Real Annual Change) 6.0% 5.5% 5.0% 4.5% Economic Research Reports Daily Economic Comment Weekly Market Report Monthly Fixed Income Report Equity Research Portfolio Strategy Market Report Industrial Research Long Term Forecasts 27