Economic Analysis - Economic Recovery To Slow In 2018 - MAR 2018

BMI View: Ecuador ' s economic recovery will slow in 2018, as an import- driven spike in consumption fades and the government is forced to rein in spending. Structural weaknesses will prevent growth from returning to pre-recession levels as the government of President Lenin Moreno attempts to adjust to a lower oil price environment.

Ecuador's economic recovery remains fragile and we expect the pace of growth will slow in 2018 to 1.0%, from 2.1% in 2017. Public sector spending cuts and the re-implementation of import restrictions will dampen public and private consumption growth respectively over the coming quarters. Additionally, persistent structural weaknesses, including a large informal economy and poor operating environment, will undermine Ecuador's growth potential. As a result we forecast real GDP growth will remain muted in the coming years, averaging 1.8% annually from 2018 to 2022, compared to 4.5% from 2011 to 2015.

Ecuador's economic recovery has been driven by consumption growth and the oil and gas sector... Household consumption in particular has been a key driver, as the lifting of a number of "safeguard" measures, including tariffs and quotas aimed at balancing the country's current account deficit, led to a spike in demand for imported consumer goods ( see 'Strong Import Growth Will Narrow Current Account Surplus', June 28 2017). Additionally, rising global oil prices have boosted exports, providing substantial tailwinds to growth in 2017.

Muted Growth Ahead
Ecuador - Real GDP Growth, % y-o-y
e/f = BMI estimate/forecast. Source: BCE, BMI

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