GDP shrinks at a milder pace in Q4

The economy remains in the doldrums in Q4: Seasonally adjusted GDP declined at a slower annual rate of 0.9% in Q4, improving from Q3’s 1.8% shrinkage but marking the fourth consecutive contraction. As a result, in 2024 as a whole, GDP fell 2.0% (2023: +2.0%), hampered by gang violence, the closure of wells in Block 43-ITT oil field, a VAT increase and the most severe drought in the last 60 years. On a seasonally adjusted quarter-on-quarter basis, GDP bounced back, increasing 1.3% in Q4, contrasting the previous quarter's 0.3% decrease and marking the best result since Q2 2023.

Broad-based improvement capped by weaker private consumption growth: Domestically, the downturn in government expenditure eased to 0.8% in annual terms in Q4 (Q3: -1.0% yoy s.a.) on the back of spending ahead of presidential elections. The same was true of fixed investment amid lower interest rates, contracting at a softer rate of 2.6% in Q4 (Q3: -5.2% yoy s.a.). That said, private spending growth plunged to 0.2% (Q3: +3.0% yoy s.a.), hampered by frequent power outages triggered by the worst drought in the last 60 years. On the external front, exports of goods and services bounced back, growing 3.5% year on year in the fourth quarter (Q3: -4.8% yoy s.a.), likely boosted by the Ecuador-China free trade agreement that came into effect a few months prior. Meanwhile, imports of goods and services growth sped up to 3.7% in Q4 (Q3: +1.8% yoy s.a.).

GDP to rebound but remain weak: Our panelists have penciled in a rebound for Q1, likely bolstered by the disbursement of USD 500 million from the IMF and pre-election government spending. In 2025 as a whole, our Consensus is for the economy to return to growth following 2024’s decline due to rebounds across all domestic demand components. That said, growth will remain below its pre-pandemic decade average of 3.6% and among the weakest in Latin America, and higher-than-expected U.S. import tariffs and lower-than-expected oil prices are downside risks.

Panelist insight: Commenting on the outlook, Goldman Sachs’s Sergio Armella stated: “Looking ahead, we expect growth to strengthen in 2025. […] Headwinds from lower global growth, weaker terms of trades due to lower oil prices, and a need for further fiscal consolidation are a downside risk to activity. Following the election results, however, we expect policy uncertainty to decline which could support firmer consumption and investment.”

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