Ecuador: Economy contracts for the first time in three years in Q3
January 2, 2020
The economy contracted for the first time since Q3 2016 in the third quarter as GDP fell 0.1% on an annual basis, contrasting the revised 0.6% expansion in the second quarter (previously reported: +0.3% year-on-year).
A marked contraction in domestic demand was behind the downturn. Public expenditure shrank at a quicker pace of 2.8% in Q3 after falling 0.3% in Q2 (previously reported: -1.2% yoy) amid government efforts to narrow the fiscal deficit under the IMF-mandated belt-tightening program. Moreover, fixed investment withered 3.0% in Q3, after contracting 2.6% in Q2 (previously reported: -1.8% yoy). Meanwhile, private consumption growth slowed in Q3, moderating to 1.1% from Q2’s 2.3% expansion (previously reported: +0.6% yoy) amid weakening consumer sentiment.
On the external front, export growth lost pace in the third quarter, slowing to 4.1% from a revised 4.9% in Q2 (previously reported: +5.7% yoy). Meanwhile, import growth markedly slowed in the same period, ebbing to 0.3% in Q3 from Q2’s upwardly revised 5.0% expansion (previously reported: +2.2% yoy).
Looking ahead, activity is seen rebounding mildly in 2020 as fixed investment recovers amid improved business sentiment; private consumption picks up slightly on the back of buoyant credit growth; and the fiscal position improves. However, political uncertainty ahead of the 2021 elections, and the risk of social unrest as the government attempts to cut its wage bill, pose key threats to the outlook.
Author: Hanna Andersson, Economist