As if Nature Itself is Protesting
Though it’s still too soon to speak of recession in Ecuador, Q1 GDP performance, the negative oil price outlook for H2, casts doubt upon the official growth estimate of 1.9% for 2015. And economic prospects for 2016 look even worse as the Minister of Finance, Fausto Herrera declared the government will use a budget reference price of oil not higher than $40/b.
In Q1 2015, household consumption, government consumption, gross capital formation and changes in inventory show negative gross value-added rates of 0.35%, 0.24%, 0.47% and 0.56% q/q, leaving exports and the fall of imports as the only positive contributors.
Though some of these results were less drastic than in Q1 2009, during the global crisis, structural differences matter.Now there is no expectation of oil price recovery, and the government lacks the reserves it had in 2009.Too, the ratio of debt/GDP is 15% higher than in 2008 -- amid rising interest rates, and S&P’s credit ratings downgrade to B from B+.
The trade deficit was $1.22 billion in H1, up $400 million from H1 2014.But the non-oil trade deficit was 16% lower, with import controls containing its drainage.On the other hand, they are also promoting the stampede of Ecuadorians to the Colombian border, attracted by goods that are both scarce in Ecuador and much cheaper in Colombia, given the peso’s nearly 60% devaluation over the last year.
The government is powerfully betting on the positive effect of the hydroelectric projects on the reduction of gas and diesel subsidies.But savings are more likely to come in 2017, leaving 2016 a year with more economic questions than answers.
Increasing oil production would be the only way to compensate for falling prices. That’s doable, but not in the short run.The government has taken steps to raise production of old fields, by putting them under private management. However, reserves must be increased, and unfortunately ITT fields are the only available source.These require some $4 billion in investment, and to achieve that goal, the government will have to change its approach toward foreign investment, unless China comes to the rescue again.
The above scenario will certainly grow more complicated if the Cotopaxi –the world’s highest active volcano -- erupts.It exploded twice on August 14th, giving President Rafael Correa the perfect alibi to declare a “state of emergency” -- which might outlaw protests just as social tensions escalate.
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