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World Bank: Political instability impacts growth in Ecuador
Posted On 05 Apr 2023
The World Bank presented on April 4, 2023 its updated projections for Latin America and the Caribbean.
The entity published its outlook report on June 7, 2022.
The multilateral organization made no changes to the forecast for Ecuador and maintains that its economy will grow 3% in 2023. While for 2024 and 2025 it estimates growth of 2.8% for both years.
The agency’s forecast is optimistic. In recent days, the Central Bank of Ecuador (BCE) adjusted its growth projection for 2023 from 3.1% to 2.6%.
However, at a press conference, William Maloney, the World Bank’s chief economist for Latin America and the Caribbean, pointed out factors that could affect Ecuador’s growth.
“Ecuador is an exporter of ‘commodities’ (raw materials) and we know the trends regarding ‘commodities’. Political instability has a direct impact on growth. This makes investors more cautious regarding the takeover” the official said.
Political instability not only affects the country, but also the region, which scares away investment and prevents local entrepreneurs from planning, Maloney added.
The World Bank noted that the economies of Latin America and the Caribbean have shown themselves to be relatively resilient in the face of growing debt pressure, inflation, and global uncertainty. But new headwinds from falling commodity prices, rising interest rates in developed countries, and uncertain recovery in China could once again cloud the region’s prospects.
The World Bank report estimates that regional GDP will grow 1.4% in 2023, a lower rate than anticipated. Rates of 2.4% are expected for 2024 and 2025, too low to achieve significant progress in poverty reduction.
To boost much-needed growth in the region, the multilateral said, countries must preserve their hard-earned resilience and take advantage of the unique opportunities offered by global economic trends toward nearshoring and green industry, according to the new report “The potential of integration, opportunities in a changing global economy” from the World Bank.
However, fiscal imbalances remain high, with an estimated average of 2.7% of GDP in 2023, further eroding already reduced fiscal space; and the level of indebtedness is expected to reach 64.7% of GDP this year, slightly below the 66.3% reached in 2022.
In addition, the recent bank failures in the US and Europe add to the uncertainty. Its repercussions on the banking system and capital flows in Latin America and the Caribbean remain to be seen, the multilateral added.
