Saturday, October 22, 2016

Colombia economy seen bottoming and growth returning in 2017

Finance Colombia:

After years of being one of the best economic success stories in Latin America, 2016 has proved to be a rough one for Colombia. While it still is expected to finish the year with the highest growth among large economies in the region, outside of Peru, the forecasted GDP uptick or around 2% to 2.5% pales in comparison to better times.

Moreover, this year has been marked by the inflation in more than a decade and a half, deteriorating macroeconomic fundamentals, and a rejected peace deal that has sent the nation into political chaos. But a new economic forecast from Bancolombia suggests that the worst will soon be over.

“We believe that in the second half of 2016 the Colombian economy is bottoming, and from 2017 a turnaround that will lead to a more constructive macroeconomic environment will consolidate,” wrote the nation’s largest bank this week. “The catalysts of this transformation will be the moderate increase in the terms of trade and growth of trading partners, falling inflation and the cycle of rate cuts to be started soon by the Central Bank, the faster pace of implementation of infrastructure projects, improving the confidence of agents and stabilization of the external imbalance and the exchange rate.”

I see oil prices heading higher over the next couple of years which will help the Colombian Peso. In addition perceptions on Colombia have been changing from its previous perception as a failed narco state too a dynamic, diversified, emerging market. The coming peace deals with FARC and ELN will also change the views of outsiders and will allow the the government to redirect resources from counter insurgency to infrastructure and development.

My portfolio has Bancolombia and Canacol Energy in it along with Groupo Aval.

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