Less fiscal spending will impact GDP in 2019, according to the Central Bank of Ecuador

Ecuadornews:

This year, the country’s economy will grow 0.2%, according to the latest estimate of the Central Bank of Ecuador (ECB). Until February, the Central estimated that GDP would grow 1.4% in 2019, but this month corrected downward the forecast, like other international entities.

For example, the World Bank lowered the expected growth for Ecuador this year from 1% to 0.1%. While the International Monetary Fund (IMF) adjusted its estimate from 0.7% to -0.5%. Of the 19 economic activities evaluated by the ECB, six will register a negative performance.

The public administration is the one that will contract the most. Until February, the Central estimated that this branch of GDP would grow 2.7%, but with the adjustment made this month, the estimate fell to -12.2%. José Hidalgo, director of the Corporation for Development Studies (Cordes), explains that this figure reflects the Government’s intention to reduce spending on consumer goods and services, in order to reach the goals agreed in the economic agreement with the IMF.

In addition, the tax cut will have an effect on household consumption and on the performance of private companies, explains Gonzalo Paredes, a professor at the Santiago de Guayaquil Catholic University. “If government spending is greatly reduced, the domestic market does not grow; that is, there is less demand for products by households, companies sell less and pay less for the State. ”

Another sector that had an important adjustment in its growth is the one related to oil and mines, which was the one that would grow the most this year (see graph). At the beginning of 2019, the Central estimated that these activities would improve by 8.5%, but corrected the figure to 5.9%.

The ECB’s manager, Verónica Artola, acknowledged that the results expected from mining activity have been delayed and the Central Bank is now more cautious with what is expected of the sector, due to issues such as the popular consultations that have been raised and that may restrain the large-scale mining projects.

Expand The shrimp sector will be one of the fastest growing in this year, according to the ECB. Photo: Archivo / EL COMERCIO Fernando Santos, former Minister of Energy, notes that the projections of greater oil production that the Government made for 2019 were too optimistic. The country expects to reach 564,000 barrels per day until the end of the year, “but the country has not yet reached 530,000,” he says.

For Santos, the problem is that the Government anticipated the start of production of the Ishpingo field by the beginning of this year, but this has not materialized due to the delay in the delivery of environmental permits by the Ministry of the Environment.

The economic analyst Jorge Calderón believes that another problem that will complicate the economy this year is the price of oil, which is falling and this trend is expected to continue throughout 2019, in a context of trade war and economic slowdown in the world .

“The economy depends – structurally – on this resource, and a price of USD 53 as it is now is below the needs of the Budget,” he says. Oil refining is another branch that has a strong contraction in Central estimates for this year. However, its weight in the total GDP is not very high, says Daniel Baquero, an analyst at Cordes. The drop of -9.8% in the refining sector is due to the arrangements that were undertaken in the Esmeraldas Refinery, the largest in the country, and which have not yet been completed.

“The country has had to import fuel, which is more expensive, and that is an impact for the economy as well,” Santos said. Among the economic activities that will have the greatest growth this year are aquaculture and shrimp, mail and communications, fishing and agriculture.

The Central adjusted upward the performance for these sectors. For example, in the shrimp sector, the initially expected growth was 1.2% and went to 2.7%. Between January and April of 2019 volume sales increased 25%, in relation to that period of 2018, thanks to the heavy investments in technification made by the crustacean producers. This year, sales of the sector are expected to reach new markets, such as Australia. (I)

Source: https://www.elcomercio.com/actualidad/gasto-fiscal-impacto-pib-ecuador.html