Wednesday, 12 August 2020

Colombia is number one in Latin America

When the International Monetary Fund (IMF) ran the rule over Latin America last month, it decided it needed to be far less bullish about growth forecasts for all of the region’s biggest economies — except one.

Colombia, the IMF said, was still on track to grow 3.4% in 2019 — easily the highest for the region’s big six economies. And while the IMF made big cuts to forecasts from Brazil to Mexico for 2020, it only shaved its estimate for Colombia by one-tenth of a percentage point to 3.6%, which would still be the country’s best growth rate since 2014, the Financial Times reports.

Tourists are flocking to Colombia in greater numbers, and foreign investors appear willing to bet on the country, even though peace remains fragile

The relatively sanguine prognosis emphasizes that while other Latin American economies have succumbed to popular protests, the fallout from the US-China trade war and political turbulence, Colombia has remained remarkably resilient, driven mostly by domestic demand.

The FT report continues…

- paying the bills -

Retail sales and consumer loans have grown at double-digit rates in recent months. Inflation is at a manageable 4%, and foreign direct investment is booming — though exactly what is fuelling this consumer and business confidence is open to debate. “It’s a unique puzzle in Latin America but it’s a good puzzle to have,” said Ernesto Revilla, head of Latin American economics at Citibank. “Growth looks good — and exceptional compared to the rest of the region — inflation is fine, interest rates are fine, and even last year’s tax reform, while it wasn’t as successful as we might have liked, was a step in the right direction.”

Some economists say Colombia is finally yielding a peace dividend following the 2016 signing of the historic deal between the government and Marxist guerrillas from the FARC. Tourists are flocking to the country in greater numbers, and foreign investors appear willing to bet on the country, even though peace remains fragile. Just last week President Iván Duque deployed 2,500 troops to the south-west of the country to combat an alarming increase in violence, blamed on former Farc members who refused to sign up to the peace accords. Others point to the results of last year’s election as a catalyst for optimism.

“In the months before the election there was a real fear that the far-left might win. People put their investment plans on ice,” one local businessman told the Financial Times. “Once that fear disappeared, companies started to reactivate their plans, and that’s still being felt in the economy.” Juan Pablo Espinosa, an economist at Bancolombia in Bogotá, said Colombians were also benefiting from higher remittances, which he said were at an all-time record in peso terms, and from easier access to credit as banks reach out to a growing middle class.

“That’s allowing families to buy durable goods that beforehand were beyond their reach,” he said, adding that Bancolombia expected the spending spree to last throughout 2020. Optimism was apparent at an investment summit in Bogotá last week, where the government announced new foreign ventures worth more thanUS$1 billion.

British construction company John Laing Group unveiled its first foray into Latin America, buying a 30% stake in a road-building project in the north-east of the country, while Peru’s Camposol said it would put $150m into avocado production. On the eve of the summit, a Chinese consortium clinched a $4.3bn contract to build the first line of Bogotá’s long-overdue metro system. The economic performance is all the more remarkable given Colombia is bearing the brunt of the Venezuelan migrant crisis. Some 1.4m Venezuelans have poured over the border in recent years, putting a strain on public services. Nor is the fragile peace process the only political problem. Mr Duque’s government suffered setbacks in last month’s local elections, and the president’s approval rating is stuck below 40%. Last month, the constitutional court ruled that his tax reform, hastily pushed through congress a year ago, is invalid and will have to be resubmitted before the end of the year. On Wednesday, his defence minister resigned after it emerged the armed forces killed at least eight children in a bombing raid on a guerrilla camp and then covered the incident up. Economists have some concerns.

- paying the bills -

The first is the weakness of the peso, which depreciated 8% against the dollar in the third quarter and has been on a downward trajectory all year. The second is the current account deficit which, at more than 4%, is higher than that of every other major Latin American economy. The government insists the deficit is fully financed by robust foreign direct investment, which jumped 24% in the first half of this year, but not everyone is convinced.

“The one thing that is flashing yellow is the current account deficit,” Mr Revilla at Citibank said. “If a country has a growing deficit it suggests there’s a lack of domestic savings.” Others question how long the consumer spending boom can last, particularly as unemployment is creeping upwards and wage growth is sluggish. “We think it will probably slow in the coming quarters,” said Quinn Markwith, a Latin American economist at Capital Economics.

“This is one reason why our 2020 growth forecast [2.3%] sits at the bottom of the consensus range.” For now, though, Colombia keeps churning out growth rates of 3# or more each quarter. “Even though Latin America is still lagging behind in many areas, there are some bright spots,” José Manuel Restrepo, the minister for trade, industry, and tourism, told the investment summit last week. “One of those bright spots is Colombia.”

Article originally appeared on Today Colombia and is republished here with permission.

Q24N is an aggregator of news for Latin America. Reports from Mexico to the tip of Chile and Caribbean are sourced for our readers to find all their Latin America news in one place.

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Article originally appeared on Today Colombia and is republished here with permission.

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