Economy expands in Q1 after contracting for one year

GDP finally bounces back: Seasonally adjusted GDP firmly rebounded in Q1, expanding 3.4% year on year (Q4 2024: -0.9% yoy s.a.), returning to growth after a year of shrinkages and marking the best result since Q2 2023. On a seasonally adjusted quarter-on-quarter basis, economic growth sped up to 3.5% in Q1, compared to the previous period's 1.3% increase and marking the best result since Q1 2021.

Domestic economy spearheads the rebound: The domestic front led the improvement, albeit partly thanks to a low statistical base of comparison. Household spending—around 60% of total GDP—shot up 7.1% in the first quarter (Q4 2024: +0.2% yoy s.a.), bolstered by lower inflation and tight labor market conditions. Moreover, fixed investment growth hit an over two-year high of 6.7% in the first quarter, rebounding from the fourth quarter's 2.6% contraction as financing conditions improved; the IMF unlocked USD 500 million in funding from end-December, and a series of interest-rate cuts in both global and emerging markets offered further support. As a final cherry on the cake, government consumption also rebounded, growing 0.4% in Q1 (Q4 2024: -0.8% yoy s.a.), likely buttressed by pre-electoral spending ahead of April’s presidential runoff. On the external front, growth in exports of goods and services decelerated to 2.7% in the first quarter (Q4 2024: +3.5% yoy s.a.), likely due to lower oil output—Ecuador’s main exported product—which plunged at the fastest rate in almost three years in Q1. Additionally, imports of goods and services growth sped up to 14.3% in Q1 (Q4 2024: +3.7% yoy), weighing on the result.

GDP growth to return but remain shaky: Our panelists forecast the economy to expand at a robust pace again in Q2. The favorable base effect will likely continue to push up annual growth of GDP, and greater political stability will have buttressed investor sentiment. In 2025 as a whole, our Consensus for GDP growth has notably improved since last month in light of the strong Q1 result. The economy is now seen recovering from last year’s dip, and growing at a pace similar to 2023. Rebounds across all domestic GDP subcomponents will underpin this bounce-back. Weather conditions are set to improve, easing the economic crunch caused by 2024’s drought—the worst in 60 years—which caused electricity outages and therefore disruptions to business operations. That said, GDP growth will likely remain below its pre-pandemic decade average, and among the weakest in Latin America, as higher U.S. tariffs and lower oil prices will cap export growth and government spending power, respectively; further drags include poor security conditions plus fiscal consolidation.

Panelist insight: Commenting on the result, Sergio Armella, analyst at Goldman Sachs, stated: “Given the stronger than expected start to the year, we have [upwardly] revised our growth forecast for 2025 […]. We caution, however, that we would not be surprised if prior data were to be revised in subsequent data releases and headwinds from weaker terms of trade due to declining oil prices and a need for further fiscal consolidation pose downside risks to activity.”

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