Colombian Trade Deficit grows adding additional pressure on the Colombian peso

Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone

– October 21, 2024 –

“The Colombian peso remains under pressure, reflecting a complicated economic scenario both domestically and internationally. Following the release of the latest trade balance data, the currency has fallen to its lowest level since October 2023 against the US dollar, highlighting the economic uncertainty facing the country. In August 2024, Colombia’s trade deficit reached USD 1.688 billion, its worst level since early 2023, expanding compared to the same period last year. This gap was mainly driven by a 4.6% increase in imports, while exports fell by 2.5%, marking the eighteenth decline in the last twenty months. Sales of fuels and extractive products, key sectors for the economy, recorded a 14.4% drop.

This deterioration in the trade balance, along with the slowdown in key economic sectors such as agriculture, manufacturing, and services, has increased the pressure on the Colombian peso. The Economic Monitoring Indicator (ISE) reported an annual growth of 2.02% in August, representing a deceleration from the 3.68% recorded the previous month. Moreover, consumer confidence remains negative, falling to -16 points in September 2024, its lowest level of the year. This trend extends the pessimism in Colombians’ economic perception, which has persisted for several years.

Internationally, expectations of a potential return of Donald Trump to the White House have strengthened the US dollar. Markets anticipate that fiscal and trade policies could keep inflation high in the United States, forcing the Federal Reserve to maintain interest rates at elevated levels. This combination of domestic and international factors suggests that pressure on the Colombian peso may persist in the short and medium term.”