Deflation due to low consumption with signs of reaching 2019

Ecuadornews:

If Ecuador had to pay a multi-million dollar fine to the Chevron oil company, its economy will be aggravated, since the country still has a liquidity problem and an annual national deflation from September 2017 to August of this year. These are part of the signals that three economic analysts and a leader of businessmen see to indicate that deflation could be extended until 2019 and depending on the actions of the Government it will be seen whether or not it arrives until 2020.

Faced with this reality, the president of the College of Economists of Guayas, Larry Yumibanda, pointed out that there is a decrease in the collection of the value added tax (VAT) of 1.6%, which means that sales are going down. Thus, in the coming months people will buy less than in previous years, as a result of which many are unemployed.

He warned that until new investments and employment are made, it will be difficult for prices to return to their normal situation.

And here you can enter a vicious circle because it is the businessmen who are absorbing the full impact, lowering their profit margin to a minimum. Then everything decreases. Sales, production and jobs.

Yumibanda stressed that we must be aware of whether Ecuador has to pay a multi-million dollar fine to Chevron because it will raise the country’s debt, which can also aggravate the deficit problem. This would fall what the Government has done to improve the economy. This scenario will drive more to depend on the credit to find the light at the end of the tunnel.

Entrepreneurs have the same vision as analysts. Patricio Alarcón, president of the Ecuadorian Business Committee, also sees that consumption is not growing, therefore he also believes that deflation could reach 2019 and that by 2020 it will depend on what the government does. He stressed that everything that is lived now is the result of the actions of the previous authorities.

Of all the experts consulted by Diario EXPRESO, the president of the Chamber of Commerce of Guayaquil, Pablo Arosemena, has a different view and believes that in November and December there will be no deflation, but speaking of the monthly figures, because in those months sales Black Friday and Christmas raise the trade.

With offers in stores of up to 70%, and because in the supermarkets the promotion of carrying three products has been generalized and paying only for two, those who benefit are the customers who have a stable job. But discounts for 12 months in a row open a challenge for companies. How to return to normal prices if clients got used to the auctions?

The economic analyst, Jorge Calderón, said that the offers should be withdrawn slowly and companies should advertise to explain the situation and thus avoid the client thinking that they are raising prices.

In general, experts believe that sales will rise at Christmas and Black Friday, but not as much as expected and required; although many customers are keeping “a couple of dollars” for when prices fall further.

Felipe Hurtado / Economic analyst of profitas

“It is an effect of low liquidity”

“By being dollarized in Ecuador, domestic liquidity depends on the country’s ability to attract dollars to the economy. Prices in Ecuador began to fall because that liquidity was reduced. The prospect is that the flow of dollars to the country will continue to be limited by the Government’s reduced debt capacity and deflation will continue. The problem with deflation is that consumers postpone their buying decisions because they expect prices to continue falling. This makes traders bolder in their promotions to attract consumers, creating a vicious circle.

Pablo Arosemena / Chamber of Commerce of Guayaquil

“In November and December there will be a positive inflation”

– It is estimated that deflation could reach 2019, what do you think?

Although prices have been disinflated for 12 months, this trend will be corrected very soon, before the end of the year. In fact, accumulated inflation of 0.1% (August) indicates that, in general, prices have had a slight increase this year. Most likely, we already have positive inflation figures for November and December, but also minimal ones. Really, the variations in prices have been minimal. Today’s prices are only 1% below their highest level in May 2017. We are not talking about a big contraction. In fact, it’s like saying that something that cost $ 100 today costs $ 99.

Have you seen offers all year, will Black Friday succeed next November?

Black Friday is always a challenge that encourages commerce to compete with better prices than usual. Without a doubt, this year they will be as or more successful than the previous ones. Black Friday offers are usually more attractive than those offered throughout the year. That is the beauty of commerce, it is an activity in constant reinvention due to competition. (I)

Source: https://www.expreso.ec/economia/economia-deflacion-finanzas-ecuador-indicadores-BA2367751