A kind IMF

ECUADOR - Report 12 Jul 2019 by Magdalena Barreiro

GDP grew 0.6% y/y in Q1 2019, but the economic contraction is evident because q/q it fell 1% in this period. In fact, only exports contributed positively to GDP growth as they rose 3.9% q/q and 3.5% y/y. Private and government consumption, and investment showed negative q/q changes of 1.4%, 4.6% and 1.8%, respectively. On a y/y basis, household consumption still increased 1%, and government demand by 0.3% but investment decreased 2.3%.

On the industry side, agriculture, shrimp, fishing, oil and mining, manufacturing, and utilities showed positive albeit marginal value added, while construction, commerce, transportation, communication, financial services, and health registered negative performances.

While prices rose just 0.37% y/y in May 2019 and continue to be an indicator of the economic downturn, they are a bit higher than in May 2018, when deflation stood at 1.01%. The vulnerability and structural constraints of the labor sector are an ongoing concern as 53% of the working population continues to hold inadequate jobs – an increase of 2.3% since December 2018.

The external sector continues to be weak, with non-oil exports growing only 0.4% y/y between January and April versus 6.3% last year, while oil exports fell from 11.5% y/y to 3.4% y/y. Imports, on the other hand, are up 5.8% y/y, but still below the 21.4% y/y registered in the same period of 2018.

The IMF released its report on the first review of its program with the government of Ecuador. It not only had encouraging comments on the progress achieved by the government but was also responsive to requested changes to initial goals. The floor for the stock of net international reserves for Q2 was changed from $2627 million to $1284 million, although the year-end goal of $3097 million was maintained. Also, the total deficit of the NFPS was changed from a $24 million surplus to a $291 million deficit. On the other hand, the primary deficit of the non-oil NFPS was reduced from $3,506 million to $3,148 million by the end of 2019.

The government has been unable to completely consolidate its majority in the Assembly after the elections of last May. Two out of the 13 commissions have been unable to reach consensus and start working. One is the labor commission, which is of special importance for the approval of the upcoming labor reform considered under the agreement with the IMF and has been long-awaited by many sectors.

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