What 2017 will bring

Hi everybody!

As my last week post was about the main issues that affected the financial markets in 2016, its only logical that today post, the first one in 2017, be about what’s to come in the 2017 both in the local and foreign financial markets.

But, before we get into that, is important check how the markets reacted to the year’s start and look at two particular issues related among them, the high price in oil and the higher inflation in Germany. In Germany the prices showed this week a higher than expected rise reaching with a rate of 1.7% levels of 2013, and starting to question the continuity of the European Central Bank policy of quantitative easing in fighting deflation. Likewise, the oil reached the highest price in year and a half for the WTI reference with 53.81 USD/barrel caused by the beginning of the OPEC cuts in production established in the November agreements.

It’s important to notice in 2017 is expected an important drive for the Latam region caused by Brazil, because after its political crisis its assets are perceived as cheap by the investors and the new stability in the government will attract capital flows having an important impact in the whole region.

In the next chart there are some key variables to keep track in the 2017 taking as sources the quarterly and monthly surveys of the Banco de la República (Colombia’s central bank), the World Bank and real data available at the moment of writing this post.

Made by the author. Sources: Banco de la República, World Bank, Dane

As these issues are happening in the international markets, the local markets starts the year with a new tax reform that hasn’t been well received, however the analysts expectations shows better developments in economic growth, inflation and a TRM (Colombian Peso / US dollar exchange rate) relatively stable.

Specifically, in the economy price level by the end of 2017 its expected the disappearing of the external shocks effects with a rate of 4.36% getting closer to the inflation target of 4%, which should affect positively home consumption, however this effect may be negated by the new IVA (Consumption tax) rate increase from 16% to 19% that will impact the goods and services general prices. So without a clear effect in the home’s consumption, the great bet for this year economic growth goes again to the infrastructure expense with the financial closing of the 2nd and 3rd wave of the 4th generation freeways, and the income from a higher price in oil.

From mi point of view, the best we can hope for, given the circumstances, is a growth rate very similar to 2016, because the IVA increase will have a negative impact in consumption and its not clear if the oil prices will remain high because it remains to be seen if the supply reduction from the OPEC and its allies will not be filled with America’s Shale oil companies, negating the price effect.

That’s all for today, see you all next week!

*This post represents the author opinions and should not be taken as an investment recommendation.

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