Ecuador: GDP contracts in Q1 at sharpest pace in four years
June 30, 2020
The economy contracted 2.4% on an annual basis in the first quarter, which followed the fourth quarter's 1.0% decrease, as the shocks from the oil price collapse and the coronavirus pandemic hammered activity. Q1's reading marked the largest drop since Q1 2016 and the third consecutive quarter of contraction.
The downturn was chiefly driven by withering domestic demand. Public expenditure shrank 5.0% in Q1 after falling 5.8% in Q4 as plunging oil revenues forced the government to continue to cut spending to reduce its financing gap. Moreover, fixed investment declined 6.0% in Q1, down from Q4’s 2.8% contraction, while private consumption fell 0.6%, contrasting the previous quarter’s 0.4% expansion.
On the external front, export growth moderated to 3.6% in the first quarter, down from Q4’s 4.0% expansion amid weaker external demand. Conversely, imports of goods and services bounced back, growing 0.2% in Q1 (Q4 2019: -0.7% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic activity dropped 2.1% in Q1 from the previous quarter's 0.7% fall.
Looking ahead, the economy is expected to contract notably this year due to the Covid-19 crisis. Containment measures will cripple domestic demand, while continued low oil prices will hammer exports and revenues. Despite funding from multilateral organizations, the risk of a sovereign debt default remains high and further clouds the outlook.
Author: Hanna Andersson, Economist