Trying Times
The Ecuadorian economy contracted severely in Q1, with GDP shrinking 1.9% q/q, and 3% y/y. Despite the poor performance of oil revenues due to plummeting oil prices, the oil sector value added was still positive, at 2% q/q and 1% y/y, while the non-oil sector shrank 2.2% q/q and 2.6% y/y.
Household consumption fell 2.5% q/q, government consumption dropped 5.2%, and gross capital formation was down 4%. All industries but agriculture and fishing (with the exception of shrimp) also shrank, in both quarterly and annualized terms.Of special concern is the y/y performance of some of the major contributors to GDP, such as shrimp (- 6.7%), construction (-4.4%), commerce (- 3.5%) and manufacturing (-1.3%). With these results, our estimate for year-end economic growth falls close to that of the World Bank’s projection, at around -4%.
New labor information shows an improvement in unemployment, though, down from 7.4% in Q1 to 6.7% in Q2,and in underemployment, down from 39.2% in Q1 to 38.4% in Q2.These changes are quite surprising, considering the earthquake of April 2016 that left a large number of the population in affected areas unemployed.
The balance of trade has improved significantly, shifting from a deficit of $1.116 billion between January-May 2015 to a surplus of $404 million for the same period of 2016.Non-oil imports fell 31%, while exports dropped by just 9%, reducing the sectoral deficit by $1.868 billion y/y. In the oil sector, production remains almost unchanged, at 83.2 million barrels -- but exports fell by close to five million barrels, due to domestic demand from the Esmeraldas refinery.
Budget execution between January and June showed revenues of $7.953 billion (37.6% of the initial estimate) and expenditures of $10.104 billion (39.2%), from which capital expenditures came to just $2.815 billion (26.5%) resulting in a deficit of $2.151 billion in H1 2016.
The political arena has been filling up with opposition candidates, with Cynthia Viteri (of the Social Christian Party) and Guillermo Lasso (of CREO) ranking highest in voter intention, but still below that of the government candidates, former vice president Lenin Moreno and current Vice President Jorge Glass. Ecuadorians are used to President Rafael Correa’s shifting sentiments on almost any initiative, and so were not surprised when he recently threatened to run again in 2017 – an angry reaction to a scandal provoked by the “extra salary” paid by the Ecuadorian government to Moreno, now a special envoy to the U.N. in Geneva for people with disabilities, covered by Ecuadorian taxpayers.
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