Ecuador: GDP contraction deepens in Q4; full year economic growth slows markedly
March 31, 2016
Ecuador’s GDP in Q4 2015 contracted for a second consecutive quarter, recording a 1.2% drop compared to the same quarter last year (Q3: -1.0% year-on-year). Q4’s result, which marked the lowest reading in six years, was dragged down by contractions in all components of domestic demand. While the external sector continued to contribute positively to growth, it performed somewhat weaker than in Q3. In the full year 2015, GDP expanded a meagre 0.3% (2014: +3.7%), which marked the slowest pace of growth in since 2000.
The collapse in oil prices has had far-reaching implications for Ecuador’s growth, and the dollarization of the economy has prevented the country from undergoing a currency devaluation that would alleviate some of the strain. Instead of a falling currency, wages as well as government spending are undergoing a downward adjustment.
In Q4, total consumption dropped 2.1% year-on-year, which was a steeper contraction than Q3’s 1.0% fall. Weaker performances of both private and public consumption were behind this development: private consumption fell 2.5% in Q4 (Q3: -1.5% yoy), while public spending contracted 0.4% in Q4, which marked the steepest fall in eight years (Q3: +1.0% yoy). Fixed investment continued to be impacted by the drop in oil prices, as both diminished government revenues and a lack of outside investor interest have resulted in lower funding for infrastructure and energy projects. Investment contracted 8.5% in Q4, which was up from Q3’s notable11.8% drop.
The external sector performed slightly worse in Q4. Exports contracted at a steeper pace (Q4: -2.4% yoy, Q3: -0.5% yoy) and imports also continued to plummet (Q4: -10.7% yoy, Q3: -10.4% yoy). This resulted in the external sector’s contribution to growth falling from plus 3.2 percentage points in Q3 to plus 2.8 percentage points in Q4.
In seasonally-adjusted terms, the economy returned to a soft 0.1% quarter-on-quarter growth and exited technical recession in Q4, after three quarters with shrinking output. Q4’s reading contrasted Q3’s 0.1% drop.