Ecuador: Economy grows at the weakest pace in nearly three years in Q2
October 1, 2019
The economy lost traction again in the second quarter, with GDP growth in annual terms halving to 0.3% from 0.6% in the first quarter, marking the slowest pace of expansion since Q3 2016. Growth rebounded in quarter-on-quarter terms, however, from a 0.9% contraction in Q1 to a 0.4% upturn in Q2.
A sharper contraction in domestic demand drove the downturn (Q2: -0.6% year-on-year; Q1: -0.2% yoy). Government expenditure fell 1.2% in Q2 after rising a meagre 0.3% in Q1, reflecting ongoing efforts to strengthen the fiscal account under the IMF-mandated belt-tightening program. Meanwhile, private consumption growth weakened for the fourth consecutive quarter (Q2. +0.6% yoy; Q1: +0.8% yoy) and fixed investment contracted again, albeit more softly (Q2: -1.8% yoy; Q1: -2.4% yoy), as fiscal consolidation measures continued to weigh on economic sentiment.
On the upside, the external sector contributed positively to growth. Exports of goods and services rose at a faster pace of 5.7% in the second quarter after rising 3.6% in Q1, reflecting faster expansions in sales of crude oil, banana and plantain, and shrimp. At the same time, imports of goods and services gained steam, increasing 2.2% after expanding 0.6% in Q1.
Looking ahead, the economy is seen returning to mild growth in 2020 after flatlining this year, as domestic demand slowly recovers amid improving sentiment, although a fall in export growth is set to restrain the pace of recovery. Meanwhile, IMF-mandated reforms should help strengthen the fiscal account further, which is seen in surplus next year, while boosting international reserves.
Author: Nihad Ahmed, Economist