Ecuador’s recovery strengthened in the third quarter of 2017. Annual GDP growth climbed to 3.8%, up from 2.9% in the previous quarter, thanks to higher government spending and solid household consumption, which was propped up by rapid growth in private sector credit. The latest
economic activity data indicates that the economy’s pace of expansion likely slowed in October, as economic activity again contracted. While exports grew at a double-digit rate in November, cashing in on the oil price upturn, imports again climbed at a swifter pace, translating
into a drag on growth by the external sector. Ecuador dropped plans to seek an exemption from OPEC to lift output in November. Political tensions remain high as President Lenín Moreno pushes ahead with a controversial nationwide referendum, slated for 4 February, to impose a limit on election terms.
• Resilient private consumption, while expected to moderate this year, will continue supporting growth. Planned austerity measures will, however, dampen economic activity and disrupt the economic recovery. A high dependence on external borrowing puts the economy’s long-term financial stability at risk. FocusEconomics panelists project GDP expanding 1.6%
next year, which is up 0.2 percentage points from last month’s forecast. In 2019, GDP growth is seen at 1.1%.
• Consumer prices decreased 0.2% year-on-year in December, matching November’s reading. FocusEconomics panelists expect inflation to end 2018 at 1.6%. In 2019, inflation is seen ending the year at 2.2%.
REAL SECTOR | Economy gains traction in Q3 Ecuador’s economic recovery continued to gain steam in the third quarter of 2017: Annual GDP growth rose to 3.8%, following a revised 2.9% yearon- year expansion in the second quarter (previously reported: +3.3% yearon-
year). The economy experienced a downturn in quarter-on-quarter terms, however. Quarter-on-quarter growth on a seasonally-adjusted basis dropped to 0.9% in Q3, down from a revised 1.7% rebound in Q2 (previously reported: +1.9% quarter-on-quarter).
Robust domestic demand again fueled the upturn in annual growth, rising 6.4% in annual terms, up from a 5.7% year-on-year rise in Q2. Government consumption more than doubled from the previous quarter (Q3: +4.8% yoy; Q2: +2.0% yoy), and household consumption—supported by an ongoing
surge in private credit—continued rising at a solid rate (Q3: +5.3% yoy; Q2: +5.3% yoy). An ongoing downturn in the construction sector, however, caused a sharper contraction in fixed investment, which dropped 2.3% in Q3 (Q2: -1.8% yoy).
The external sector again dragged on growth, failing to reap the benefits of a pick-up in oil prices in the quarter despite a boost in oil production. Exports dropped 0.5% year-on-year, contrasting Q2’s 0.6% rise, the first contraction since Q1 2016. Meanwhile, imports jumped 8.8% in Q3, moderating from a 11.3% leap in Q2. This translated into a negative contribution to overall economic growth by the external sector, which deducted 2.4 percentage points from growth, although it was down from the 2.6 percentage points deduction in the previous quarter.
While recent data shows the recovery is on track, the economy’s growth prospects must be viewed with cautious optimism. The dollarized economy’s significant reliance on external borrowing to service rising debt installments and additional loan payments, including oil pre-sale and contracts with China, combined with fewer import controls, are rapidly draining the country’s foreign
reserves and steadily becoming more marked limitations to achieving higher sustainable growth.
Panelists surveyed for this month’s LatinFocus report expect GDP to expand 1.6% in 2018, which is up 0.2 percentage points from last month’s forecast. For 2019, panelists project the economy to grow 1.1%.
REAL SECTOR | Economic activity contracts at slightly softer pace in November In November, economic activity contracted 0.8% in annual terms, according to the monthly indicator for economic activity (IDEAC, Indice de Actividad Económica Coyuntural) released by the Central Bank of Ecuador. The decline was slightly softer than October’s revised 1.0% year-on-year contraction
(previously reported: -1.8% year-on-year). Reasons for the decline in overall activity have yet to be released. In month-on-month, seasonally-adjusted terms, economic activity rose 0.4%
in November, following a revised 0.1% drop in October (previously reported: -0.3% month-on-month).
MONETARY SECTOR | Consumer prices stabilize in December In December, consumer prices rose 0.18% over the previous month, contrasting a 0.27% drop in November. The increase was led by higher prices for food and non-alcoholic beverages.
Consumer prices, on an annual basis, decreased 0.2% in December, mirroring November’s reading. The record low print stems from Ecuador’s dollarized economy operating amid historically low inflation rates in the United States.
Annual average inflation edged down from 0.5% in November to 0.4% in December.
Panelists participating in the LatinFocus Consensus Forecast expect inflation of 1.6%, down 0.1 percentage points from last month’s estimate. The panel projects inflation accelerating to 2.2% at the end of 2019.
FUENTE: Focus Economics - https://www.focus-economics.com/ - Desde Barcelona España
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