Mountains in Ecuador

Ecuador GDP Q2 2019

Ecuador: Economy grows at the weakest pace in nearly three years in Q2

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.

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