Análisis Económico de Ecuador: Por Focus Economics

The economy performed better than expected in the second quarter, growing at the quickest pace since Q1 2015. Falling investment was offset by buoyant household spending and a surge in oil production, which drove the upturn. However, incoming data for the third quarter suggests

that growth has lost steam since Q2: Economic activity recorded the worst result since February in August and export growth slowed in the same month. On 31 October, President Lenín Moreno was ousted as leader of the ruling Country Alliance party, a move that does not affect his position as president but highlights the deep political divisions within the party. The party has been divided by a feud between Moreno and former president Rafael Correa. Moreno is overseeing a vast corruption probe that has implicated high-level officials in the former administration. He is planning a referendum next year that would reestablish election terms.

 Robust household spending is expected to shore up growth next year, although austerity measures will dampen activity. FocusEconomics panelists see GDP expanding 1.3% next year, which is up 0.3 percentage points from last month’s forecast. In 2019, GDP is seen increasing 1.5%.

 Inflation came in flat in September (August: 0.3%). FocusEconomics panelists expect inflation to pick up modestly in the coming quarters and end 2018 at 1.8%. In 2019, inflation is seen ending the year at 2.6%. REAL SECTOR | Economic activity loses steam in August In August, economic activity grew 3.6% in annual terms, according to the monthly indicator for economic activity (IDEAC, Indice de Actividad Económica Coyuntural), released by the Central Bank of Ecuador. August’s print marks a deceleration from July’s revised 3.9% increase (previously reported: +4.5%

year-on-year). In month-on-month, seasonally adjusted terms, economic activity rose 0.4%

in August, up from a revised 0.2% rise in July (previously reported: +0.9% month-on-month). In August, annual average growth in economic activity came in at 3.3%, above July’s 2.8%.

Panelists participating in the LatinFocus Consensus Forecast are still factoring in the higher-than-expected performance of the economy in Q2 2017, but for the moment they expect the economy to grow 1.3% in 2018, which is up 0.3 percentage points from last month’s projection. For 2019, the panel sees economic growth accelerating to 1.5%.

MONETARY SECTOR | Inflation drops to multi-year low In September, consumer prices decreased 0.15% from the previous month after recording a 0.01% increase in August. Lower prices for food and nonalcoholic beverages underpinned the fall, which was also supported by a decline in the prices for miscellaneous goods and services. On the other hand, education recorded the biggest price increase.

Inflation came in flat in September, down from 0.3% in August. The result marks a multi-year low and can be attributed to the dollarization of the economy amid historically low rates of inflation in the United States. Annual average inflation also observed a flat reading in September, down from 0.9% in August. Panelists participating in the LatinFocus Consensus Forecast expect inflation of 1.8% at the end of 2018, which is down 0.2 percentage points from last month’s estimate. The panel projects inflation rising to 2.6% at the end of 2019.

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