Colombia: Growth to accelerate after the fall in oil prices

​Real GDP increased by +3.1% in 2015, among the highest rates in Latin America. Yet, output growth moderated as a result of the severe oil price shock. since crude oil accounts for 40% of total exports. Euler Hermes expects a slowdown of growth to +1.8% in 2016 and to remain below +3% in 2017, far below the 2010-2014 +4.8% average. The recession that hit regional trade partners (Ecuador and Venezuela are clear examples) affected Colombia’s export revenues. These are expected to start growing in 2017. While the current account deficit should decline to -4.9% of GDP (2016) it will remain large.

Adding to the economic woes was the CBP sharp depreciation, as it tumbled by more than -40% against the USD since July 2014, generating distress in import-intensive sectors. This has also caused a surge in inflation and one can expect the index to remain above the +3% target beyond 2017. The Central Bank reacted and tightened monetary policy between September 2015 and July 2016. Despite more restrictive local and external financing conditions, a balance of payments crisis is unlikely. Colombia has built enough financial buffers to avoid liquidity and financing shortages. The level of foreign exchange reserves is comfortable and can cover around 11 months of imports (compared to 7 months two years ago. Colombia benefits from a Flexible Credit Line from the IMF.