Consumption in Ecuador

Ecuador - Consumption

GDP drops at milder pace in Q1

The decline in economic activity moderated again in the opening quarter of the year, with GDP falling 5.6% year-on-year (Q4 2020: -7.2% yoy). That said, the drop was still pronounced and marked the sixth successive quarter of shrinking output.

The first quarter’s milder contraction was largely attributed to an improvement in domestic demand: Household consumption slid at a softer rate of 3.0% in annual terms in Q1, following the 6.8% decline tallied in the prior quarter. Similarly, the fall in fixed investment also moderated, with Q1 seeing the softest contraction in a year (Q1: -6.3% yoy; Q4 2020: -11.5% yoy). Meanwhile, government consumption tumbled at a sharper rate of 8.5%, following Q4 2020’s 6.7% drop.

On the external front, exports of goods and services swung back to contraction, sliding 3.0% on an annual basis and contrasting Q4 2020’s 2.9% expansion. That said, imports of goods and services rebounded, growing 2.0% (Q4 2020: -0.3% yoy) and further highlighting firming domestic activity. As a result, the external sector weighed on the headline reading, contrasting the prior’s quarter positive contribution.

Lastly, on a seasonally-adjusted quarter-on-quarter basis, economic activity grew 0.7% in Q1, marginally above the 0.6% expansion logged in the previous quarter.

This year, GDP is seen returning to growth, particularly in the second half of the year, as the relaxation of Covid-19 restrictions midway through Q2 should be releasing pent-up demand and bolstering domestic activity. Moreover, higher average prices for oil—the country’s key export—and the reopening of economies globally should support the external sector. That said, the country’s still-low vaccination rate, coupled with the emergence of new Covid-19 variants, poses a key downside risk.

Analysts at EIU, said:

“We expect real GDP to recover only modestly in 2021, expanding by just 2%, reflecting weak sequential growth over the year, as well as negative base effects. A recovery in private consumption will be restrained by a lack of fiscal support for consumers amid the Covid-19 crisis and a slow improvement in labour market conditions.”

LatinFocus Consensus Forecast panelists project GDP to grow 3.2% in 2021. For 2022, the panel sees GDP expanding 2.5%.