12 May 2020 by jbchevrel
The chart is a bit skewed by Argent and Ecuador, I recommend to zoom in on the non-distressed LatAm cluster. Colombia CDS has performed strongly along with other EMs. It is now close to 200bp, CDX EM is getting closer to 300bp. The reversal in crude prices and more generally risk sentiment have been helpful. Looking at Colombia from an idiosyncratic standpoint, there still seem to be reasons to be cautious. Colombia’s investment grade rating is probably at risk, here. 2/3 of the big agencies have Colombia just 1 notch above HY, with 2/3 with negative outlooks: Fitch has it BBB-n S&P has BBB-s Moody’s has Ba2n. It is fairly possible that at least one of them will downgrade Colombia to HY level, because of the coming recession in Colombia, because of the upside pressure on debt burden and worsened external imbalances. As far as the former (GDP) is concerned, looking at economists projections, it seems that both the average and the median projections are for about -1% in GDP in 2020, according to Bloomberg. Some of the most accurate economists though foresee steeper drops in Colombia GDP this year. In particular, still according to Bloomberg, JP Morgan and Barclays foresee -4%, HSBC foresees -4.5%. UBS has -3.5%. So Colombia is to register a deep recession in 2020, especially for a country that has not gone through a recession in at least 20 years, contrary to other LatAms. As far as COVID, data suggest that local efforts have flattened the curve in Colombia as well. Gradual easing of the lock down started in 70 municipalities and key industries happened as in France, on May 11th. On the monetary side of the equation, BanRep will keep easing gradually, according to the current consensus. Board members have mentioned that under current circumstances, the monetary policy transmission mechanism may not work. That probably means that further rate cuts are possible. On the fiscal side of the equation, the government has introduced support measured that totalled ~3% of GDP. Moreover, the Fiscal Rule Committee has authorised a deficit target of 6.1% of GDP for 2020.