What Jumps Out – A Double Edged Sword (10.2% Growth In 2021)…

It’s hard not to be happy when your president announces from Brussels that 2021 growth will be at least 10.2% in 2021, especially when coupled with strong macro data from the DANE on the same day – but this is a cautionary tale.

On top of that 10.2% number, and surely President Duque is speaking with more than a little inside knowledge, we had retail sales and manufacturing data for December that was well above estimates, however when coupled with another big import number, the question is how do the authorities avoid the specter of overheating?

Retail sales rose 15.9% YoY (consensus 12%) and Manufacturing rose 13.1% (9.2%) – this after a November print that wasn’t quite as promising as some of the previous ones and during a period in which consumer confidence had begun to reverse downwards from a high of -1.3% to -6.5% in December and down to -13.5% in January.

In the same month that same recovery in internal demand was reflected by another $6.2bn in imports, the second highest on record after November – again with everything that has happened over the last two years this should be very welcome news, it is easy to forget how dark the days of mid 2020 were. However, that surge of demand is causing a surge in the deficit which stood at $1.2bn in December, lower than recent numbers but a 2021 total of ~$14bn is not a healthy situation, demand recovery or not. A simple example is the knock-on effect on inflation. Around 17% of food is directly imported, at a forex of $3950 that impacts CPI but furthermore there are animal feeds, farm machinery, pesticides and a wealth of other agriculture products which are impacted. On the ground, consumer durables have been heavily impacted – vehicle prices have risen to such an extent that there is now a lift in the price in the used car market for certain brands.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

This is already being reflected in an inflation rate of 6.94% and the Central Bank’s quasi-panic 1% increase at their last meeting – the question is just how hot is the economy, simply warm or overheating ?

The latest Fedesarrollo Finance Survey for February continues in the ‘warm’ phase with expectations for 2022 growth actually easing from 4.5% to 4.2% – however they are still at 9.97% for 2021. In terms of interest rates the consensus is a 6% rate (+2%) for the close of the year. When we get to inflation there is a sense of ‘over-heating’ with consensus now at 5.1%, up from 4.6% a month ago, well out of the Central Bank’s 2-4% band and not far below where we are now.

It is unquestionably going to be a tough few months and take some negotiating – the Peso is predicted to close 2022 around 3850 however there is a lot of political fear baked in to that however as we have seen in Chile and Peru the election of socialist presidents actually led to a snap back in the currency. On top of that if oil continues to surge and Ecopetrol can increase production somewhat, the Peso will be helped.

An Interesting few weeks and months ahead.

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That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops