The prices of products imported from the European Union will fall, but remittances sent by migrants will also fall.
Referential image of a European car brand. Dealership of the European brand Renault on September 5, 2022.
The euro fell on September 5 to its lowest value for almost 20 years against the dollar, closing at USD 0.99.
The revaluation of the dollar against the euro is driven by the rise in interest rates by the Federal Reserve (FED) during 2022, explains the professor of economics at the University of the Americas (UDLA), Fidel Jaramillo.
With the increase in interest rates in the United States, investors prefer to convert their resources to dollars and move them to that country, which offers more profitability than Europe, explains Jaramillo.
In this context, the price of the euro reached parity with the US dollar on July 12, something that had not happened since 2002.
And, from January 1 to September 5, the dollar has already appreciated 15% against the euro.
Winds of recession
For the rector of Tecnológico Argos, Jorge Calderón, the Russian invasion of Ukraine is another factor that has affected the euro, since the markets fear that the European Union will enter a recession.
The war pushed up energy and fuel prices in Europe, causing inflation to skyrocket to 8.9% in July, adds Calderón.
A new problem is that the Russian Nord Stream 1 pipeline, which supplies natural gas to Germany, went into maintenance on August 30. It was supposed to resume operations on September 2, but that did not happen.
How does it affect Ecuador?
The European Union (EU) is the third largest buyer of Ecuadorian products.
Hence, the revaluation of the dollar against the euro will have effects on trade, says Jaramillo.
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Exports get more expensive
Shrimp and bananas are the main non-oil products that Ecuador sells to Europe. Together they represented 52% of the USD 1,968 million of non-oil exports to that bloc in the first half of 2022.
But now the countries of the European Union (EU) will need more euros to buy the same amount of products that they obtained when the dollar was worth less, explains the executive vice president of the Federation of Exporters (Fedexpor), Xavier Rosero.
Ecuadorian products, considered premium in the EU, become more expensive for families who now have less purchasing power and must prioritize their spending.
One of the most affected is the banana. The executive director of the Banana Exporters Association, Richard Salazar, explains that sales of the fruit to Europe fell 13% between January and July 2022, compared to the same period in 2021.
The EU countries have reduced the demand for Ecuadorian fruit and prefer to buy from countries like Colombia.
Europeans pay USD 0.50 less for each box of Colombian bananas compared to the Ecuadorian box, adds Salazar.
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Importing is less expensive
The prices of goods brought from the EU to Ecuador have risen after the inflationary processes that the bloc is experiencing.
But the fall of the euro will contain that rise and Ecuador will import European products such as cars and medicines at a lower cost, says the executive director of the Guayaquil Chamber of Commerce, Juan Carlos Díaz-Granados.
Rosero adds that the price reduction will not be generalized, because around 50% of imports are agreed in dollars.
The goods that Ecuador buys the most from Europe are medicines, cars and machinery.
Hence, the devaluation of the euro will be an opportunity for the Ecuadorian industry to buy high-quality machinery, says Rosero.
Of the total Ecuadorian imports from the EU, which totaled USD 1,288 million, 7.6% corresponds to medicines, 5.1% to cars and 4.9% to machinery.
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Fewer remittances
24% of the USD 1,103 million of remittances that entered Ecuador in the first quarter of 2022 came from EU countries.
With a stronger dollar, migrants will have to collect more euros if they want to match the amounts they used to send to their families, explains Calderón.
But it will be difficult, because inflation in Europe and the economic slowdown were already reducing the purchasing power and income of migrants.
Remittances have already fallen 8.8% between the last quarter of 2021 and the first quarter of 2022.
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cheaper tourism
With a stronger dollar, Ecuadorians will find it less expensive to buy goods and services in the European Union.
The strength of the dollar against the euro has encouraged more Ecuadorians to travel, says the executive director of the Hotel Federation of Ecuador, Diego Utreras.
According to the Ministry of Tourism, 136,798 Ecuadorians traveled to Europe between January and July 2022.
Trips to Europe represented 11% of all Ecuadorian departures abroad.
The departure of Ecuadorians to Europe almost tripled compared to the period from January to July 2021, when 50,459 Ecuadorians traveled to Europe.
However, Utreras explains that the Schengen visa requirement is one of the barriers to further growth of tourism to that destination.
