The Venezuelan crisis affects Colombia’s economic growth

If Nicolás Maduro perpetrates his presidential period, the economic growth in Colombia would slow down in 2019. Moody's warns that the crisis can transcend borders

The Venezuelan crisis affects Colombia’s economic growth

A recent report by the rating agency Moody's indicated that Nicolás Maduro's exit from the presidency of Venezuela would not only bring benefits for the country's internal economy, but also an economic acceleration of its South American neighbors, mainly Colombia.

Leer en español: La crisis venezolana también afecta el crecimiento económico de Colombia

Moody's report suggests that Colombia's gross domestic product (GDP) would grow 3.9% in 2019 if Nicolás Maduro leaves Venezuela's presidency during that year. This would generate an economic acceleration in Colombia of 4.2% in 2020 and 2021, as mentioned by the rating agency.

On the contrary, if the Maduro regime remains and is strengthened in the next six years corresponding to its presidential term, the growth projection for Colombia would decrease by 5% and 8%. If so, it would achieve an increase in GDP in 2019 of only 3.1% or 3.4% with respect to how entrenched Nicolás Maduro is in power.

As the report explains, "the strong contraction in economic production and oil production in Venezuela reduces growth in the rest of South America, but the negative side effects are more evident in Colombia, where growth is 0.2% lower in an annual until 2020. This drag is not great in absolute terms, but it is significant for Colombia, which has had problems growing at rates above 2% during the last two years."

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How are the trade relations between Venezuela and Colombia?

Colombia and Venezuela have historically been commercial allies due to the characteristics of their borders and productive differences. But since 2010, the year in which the political and economic crisis in Venezuela erupted, trade exchanges between the two nations began to decline.

In 2010, exports from Colombia to Venezuela fell sharply by 68.9%. The figure has remained fluctuating and during the first quarter of 2017, trade between both nations contracted by 58% compared to the same period of 2016. While between January and March 2016, trade between the countries represented 308 million of dollars, during the first three months of 2017 the figure fell 129 million dollars, reports the Chamber of Colombian Venezuelan Economic Integration (Cavecol).

According to data from the Observatory of Economic Complexity (OEC), Brazil and Colombia are the main buyers of Venezuelan products in South America with 55% and 25% respectively. However, this figure represents less than 3% of its exports to Venezuela, since its main buyers of refined petroleum products and derivatives are the US, China, India and Singapore.

Despite the economic declines among nations, during the first months of this year there was a surprising increase in exports from Colombia to Venezuela. According to DANE figures, between January and February of 2018, the external sales to the country administered by Nicolás Maduro unexpectedly grew above 50% and amounted to 58.8 million dollars.

Among the products where exports increased, categories such as animals and products were highlighted (in 2017 they were not imported), vehicles (297.9%), chemical products (151.5%), metals and their manufactures (101.6%) and plastic materials (62%).

According to forecasts of the International Monetary Fund (IMF), the economic growth for Colombia in 2019 is expected to be 3.3%. If this is compared with Moody's analysis, an increase of up to 6% in the economic projection of the coffee-growing nation, which would depend on Maduro's exit from the Venezuelan presidency, is evident. To this we would add a reduction in the unemployment rate in Colombia and a possible rebound in exports to the oil country.

LatinAmerican Post | Krishna Jaramillo

Copy Edited by Laura Viviana Guevara Muñoz

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