Ecuador: Economy contracts for second consecutive quarter in Q4 2019
The economy contracted for the second consecutive quarter in the fourth quarter of 2019, falling 1.0% on an annual basis, down from the revised 0.3% decline in Q3 (previously reported: -0.1% year-on-year) and marking the sharpest contraction since Q3 2016. Taking the year as a whole, the economy grew a moderate 0.1% in 2019, down markedly from 2018’s 1.3% expansion.
Shriveling domestic demand was again behind the downturn. Government spending contracted at a faster rate of 5.8% in Q4 after plunging a revised 4.3% in Q3 (previously reported: -2.8% yoy) as the government continued its efforts to narrow the fiscal deficit with IMF-backed policy reforms. Meanwhile, the fall in fixed investment slowed somewhat in Q4, contracting 2.8%, which was up from Q3’s revised 3.6% decrease (previously reported: -3.0% yoy), and household spending decelerated to 0.4% in Q4, up from the revised 1.5% expansion in Q3 (previously reported: +1.1% yoy).
On the external front, export growth decelerated in Q4, moderating to 4.0% from a revised 6.7% in Q3 (previously reported: +4.1% yoy) amid slowing oil production. Meanwhile, imports fell 0.7% in the same period, down from Q3’s upwardly revised 1.5% expansion (previously reported: + 0.3% yoy).
Looking ahead, the economic fallout from the Covid-19 pandemic and the sharp fall in global oil prices are set to deliver a heavy blow to the economy this year. The government has limited fiscal space to mitigate the effects of the confinement measures implemented to combat the spread of the virus, which will severely hamper domestic demand. Meanwhile, uncertainties about forthcoming financial assistance to narrow the existing financing gap has heightened the risk of debt restructuring or default.