The route to stagnation does not change

Ecuadornews:

2019 paints a year of challenges for the Ecuadorian economy. Not only will it have to overcome the fiscal conditions, originated by the announced adjustment of expenditures, but the external factors that threaten to slow down even more the economic growth and lead the country to a possible stagnation.

The price of oil is one of them. The first warning signs, says Felix Casares, director of Betametrica, a company specializing in the analysis of statistical data, began to occur with a fall in prices that, for the moment, has forced the Government to change the level of subsidies for fuels. A situation that, according to international projections, could get worse. “ECLAC for 2019 anticipates that the value of crude oil will fall by approximately 16%. That means that the price will continue to fall and that is when the situation can be further complicated. If the State stops receiving revenues, it decreases its investment expenses and that’s when the different sectors contract. “

The expert says that we must also observe with concern how the dollar continues to appreciate and the weakening of international trade, which could lead to aggravating the deficit in the non-oil trade balance that has been growing in a galloping manner (to October this came to $ 4,195 Million, 50.3% more than last year).

These are sources of unsafe income that could further compromise the country’s budget, which by 2019 foresees financing needs of $ 8,000 million and, with it, the country’s growth.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), Ecuador will have economic growth below the Latin American average in 2018 and 2019. But analysts believe that, if everything is analyzed as a whole, the figures could even be better than projected. And that is what you have to avoid.

Influencing the price of oil or the dollar, or avoiding the low dynamics expected with a greater adjustment of fiscal expenditures, is impossible, experts say, but in return the Government should be thinking of policies that help cushion these effects: there, reactivating consumption is key.

The decline in credits that the bank has already announced will be next year, will not contribute to this dynamic. Neither the recent rise in gasoline. Hence, Marco Flores, coordinator of the Forum of Economy and Finance, proposes a policy of low taxes to compensate families. It aims to reduce the Value Added Tax (VAT) that has an immediate effect on the consumption of the total population.

Other analysts such as Alberto Acosta B., editor of the magazine Análisis Semanal, disagree on the method, since he believes that the punctual reduction of this tax could lead to greater consumption, but on the side of product imports; a fact that would originate a greater exit of currencies and counterproductive effects for the economy. “I do not think the ideal is to say that we have to boost consumption, because in order for people to be able to consume, they have to take money from somewhere”.

The route it proposes, rather, is the dynamics and liquidity that can be generated through greater business production. Although there is talk of an international trade scenario that is also complicated, Acosta says that we must continue to bet on the external market. But for this, he insists, that production costs must be lowered to be more competitive.

External factors

Petroleum

The international bad omen on oil prices, led Ecuador to adjust downwards (from $ 58.29 to $ 50.05) the income that per barrel expected for 2019.

Commerce

The volatility of financial markets and the expected deceleration of the US, China and emerging countries, could be the trigger for international trade to be affected.

The dollar

The continuous increases in rates in the US economy suggest a greater appreciation of the dollar. This would not help local exports and raise the non-oil deficit. (I)

Source: https://www.expreso.ec/economia/economia-deuda-finanzas-comercio-ecuador-JD2544597