• Fitch Solutions has lowered its 2023 and 2024 forecasts from 1.7% and 2.0% to 1.5% and 1.8%, respectively, for Colombia as policy tightening will continue to weaken consumption and investment growth.
• This downward revision comes on the back of a previous revision from 2.0% to 1.7%, after the preliminary Q223 real GDP print showed that the economy contracted 1.0% q-o-q in seasonally-adjusted (SA) terms.
• Fitch’s most recent adjustment reflects its updated monetary policy forecast, with persistently elevated inflation likely to push back the timing of the first rate cut by the Banco Central de la República (BanRep) from September to October, with the possibility of even further delays to December.
• With inflation remaining sticky through 2024, Fitch expects BanRep (Colombian Central Bank) will keep rates higher for longer, which will keep borrowing costs elevated and depress investment and private consumption growth.
• That being said, uncertainty regarding interest rates does pose some downside risk to Fitch’s growth forecasts. While Fitch expects that rate cuts will likely begin in October, inflation remains hot. If headline or core inflation remains stickier than expected, BanRep would likely delay the cuts to December 2023 or possibly 2024. This would keep borrowing costs high and would lead to a more pronounced slowdown in 2023 and likely the early months of 2024.

(Source: Fitch Solutions)

• The U.S. economy posted its first period of positive growth for 2022 in the third quarter, at least temporarily easing recession fears, the Bureau of Economic Analysis reported Thursday, Oct. 27.
• GDP, a sum of all the goods and services produced from July through September, increased at a 2.6% annualized pace for the period, according to the advance estimate. That was above the Dow Jones forecast of 2.3%.
• That reading follows consecutive negative quarters to start the year, meeting a commonly accepted definition of recession, though the National Bureau of Economic Research is generally considered the arbiter of downturns and expansions.
• The growth came in large part due to a narrowing trade deficit, which economists expected and consider to be a one-off occurrence that won’t be repeated in future quarters.
• GDP gains also came from increases in consumer spending, nonresidential fixed investment, and government spending. The report reflected an ongoing shift to services spending over goods, with spending on the former increasing by 2.8% while goods spending dropped by 1.2%.

(Source: CNBC)

• Brazil’s current account deficit will narrow from 2.3% of GDP in 2022 to 2.1% of GDP in 2023, as import growth cools more rapidly than exports. Fitch’s forecast for 2022 is a revision from 1.9% previously, as the goods trade surplus has been narrower than anticipated.
• Notably, in the year through September, Brazil ran a current account deficit of USD29.6Bn, notably wider than at the same point in 2021, and is on track to post the widest deficit since before the pandemic.
• The widening of the overall deficit was driven by a larger services trade deficit, as Brazilians resumed outbound travel as the pandemic faded; and an expansion of the primary income deficit, as foreign companies have increased repatriations due to high commodity prices and stronger growth in Brazil.
• In 2023, goods export and import growth will both slow, as the world economy weakens. Consequently, Fitch forecast 5.1% growth in exports, and 3.2% in imports in 2023, widening the goods trade surplus from 2.1% of GDP in 2022 to 2.4%.
• On the export front, it is expected that prices for Brazil’s primary commodity exports – including iron ore, soybeans, coffee and crude oil – will ease, with none likely to return to the highs seen in H1 2022. While on the import front, moderating commodity prices will cut the cost of Brazil’s import bill.

(Source: Fitch Solutions)