Ecuador: Economic growth moderates in Q4
The economy continued growing at a healthy pace in the fourth quarter of 2017, although it lost some steam from the previous quarter. Annual GDP growth moderated to 3.0%, down from a revised 3.3% in Q3 (previously reported: +3.8% year-on-year). Growth in quarter-on-quarter terms, however, accelerated considerably, rising to 1.2% in Q4 from a revised 0.3% in Q3 (previously reported: +0.9% quarter-on-quarter). Full-year GDP growth came in at 3.0% in 2017, a marked turnaround following a 1.6% contraction in 2016.
A loss of momentum in the domestic economy was behind the moderation in year-on-year growth in the fourth quarter. In annual terms, domestic demand grew 4.8% in Q4, a substantial drop from 6.5% yoy in Q3. This was due to a slightly weaker pace of growth in government consumption, which expanded 4.3% yoy in the fourth quarter (Q3: +4.8% yoy). Growth in private consumption and fixed investment picked up, however. Private consumption grew 5.6% yoy (Q3: +5.3% yoy), and fixed investment expanded 1.4% yoy (Q3: +0.4% yoy).
Looking at the external sector, exports swung back to expansion in Q4 despite slightly lower oil output in the quarter. Export growth came in at 0.4% yoy (Q3: -0.2% yoy). Imports grew at a much faster rate of 6.9% yoy, but this was a substantial drop from a jump of 11.6% yoy in the previous quarter. Overall, the external sector’s contribution remained negative, but it was a smaller deduction from growth than in the third quarter. In Q4, the external sector deducted 1.7 percentage points from growth, compared to 3.3 percentage points in Q3.
Although the economy entered a promising phase of recovery last year after being derailed by falling oil prices in 2015–2016, a high level of indebtedness poses risks to financial stability. The economy is heavily reliant on external borrowing to service its big debt burden; much of it is owed to China through loans-for-oil deals. This, combined with fewer import controls, have been draining international reserves and could prevent a speedier and sustainable recovery.