A paralyzed economy. The Central Bank of Ecuador (BCE) updated the Gross Domestic Product (GDP) growth figure and reduced it from 1.4% to 0.2%.
With the correction, the ECB is aligned with the forecasts of the International Monetary Fund (IMF) and the World Bank (WB) which calculate -0.5% and 0%, respectively, at the end of the year.
All forecasts point to stagnation and, in the worst case, a recession at the end of 2019.
If the ECB’s figures are broken down, 26 sectors will decline or show growth of less than 0.5%, out of a total of 45 economic activities analysed by the entity.
The hopes of slight economic growth, according to the Central Bank, are placed in activities such as mining, the production of flour or bakery products or the extraction of oil.
On the other side are activities such as public administration, defense, compulsory social security plans, or oil refining, which will present a strong contraction in its dynamism.
What is the reason? For the president of the Guayas College of Economists, Larry Yumibanda, the stagnation of the economy is reflected in the collection of taxes.
The analyst maintains that from January to May of this year, the collection has increased 2.4%, which, according to Yumibanda, reflects the state of the national economy. Why doesn’t the economy improve? Some sectors, such as construction, remain stagnant and everything is due to the fact that consumption is still not recovering, says the economist.
“We have internal demand problems. Unfortunately, the government has not been able to solve these internal demand problems,” adds Yumibanda.
The same government has recognized that the economy will enter a process of stagnation or possible recession due to the adjustment it must make to reduce the fiscal deficit, that is to say, the lack of resources that is generated because the income of the State does not cover all its expenses.
The College of Economists of Pichincha (CEP) is more pessimistic than the ECB and agrees with the WB: this year the Ecuadorian economy will not grow.
For Victor Hugo Alban, president of the CEP, the reforms that the government plans to carry out are the key to shore up the economy. “The Monetary Fund is even recommending that if there are no reforms, there will be no investment. And if there is no investment, there is no employment, and if there is no employment, there is no consumption,” the specialist adds.
The Government is still analyzing how it will send the three reforms that are expected for the second half of the year: labor reform, tax reform and the Law of Productive Promotion 2.
In recent weeks, government authorities have stated that the labor reform is the most urgent proposal to be sent in the coming days, to be addressed by the National Assembly.
Now the ECB estimates that consumption will decline this year. It is projected to contract by 0.1% by the end of this year.
On the other hand, Gross Fixed Capital Formation (FBKF), which has to do with investment in machinery or infrastructure for production, will grow 4.2%, according to the ECB.
Exports would also grow by the end of this year. Growth is expected to be 4.2% by the end of the year. Last year exports grew 0.9%. (I)