Americas > South America > Ecuador > Ecuador Outlook for 2013-17

Ecuador: Ecuador Outlook for 2013-17

2013/10/31

The country (Ecuador) is situated in Western South America, bordering the Pacific Ocean at the Equator, between Colombia and Peru.
It has borders with Colombia for 590km and Peru for 1420km.
Land in Ecuador is coastal plain (costa), inter-Andean central highlands (sierra), and flat to rolling eastern jungle (oriente).

OVERVIEW

The continuation of the improved political stability that Ecuador has enjoyed in recent years since Rafael Correa became president, although conflicts over environmental issues will sustain the risk of social unrest. The president remains highly popular, and his commanding majority in the National Assembly (Ecuador's Congress) will relieve the passage of legislation.

We expect Mr Correa's government to maintain an expansionary policy stance in 2014-18 and to continue its ambitious programme of public investment and infrastructure upgrades. We expect real GDP increase of 4.2% in 2014 (up marginally from 4% in 2012), as oil prices pick up only maringally and the country's major oil refinery remains closed for maintenance for parts of the year.

This will curtail the authorities' ability to raise public spending-presently the major driver of increase-at the same pace as in recent years. Over the medium term, rising production as a result of the exploitation of new fields will bolster revenue and support increase. Private investors will continue to be deterred by the unpredictable policy environment.

Political outlook

We expect Mr Correa and his Alianza País movement, who have been in office since 2007, to continue to dominate the political scene in the estimate period.

Economic policy outlook

We estimate that policy will continue to be expansionary and that national spending will remain high.

Economic forecast

Rising oil output and the disbursement of two new credit lines from China in 2013 (worth around US$3.2bn) have prompted us to raise our 2013 estimate to 4% (from 3.8%) and our 2014 estimate to 4.2% (from 4%).

Outlook for 2013-17

    The president, Rafael Correa, and his Alianza País (AP) movement-who have been in office since 2007-to continue to dominate the political scene throughout the estimate period.
    The next presidential elections are due in 2017. Although Mr Correa is constitutionally bound to step down, recent comments have raised the possibility that the AP may amend the constitution to let him run again.
    Weak initial-quarter increase of just 3.8% supports our estimate of a slowdown in 2013-14, as the authorities struggle to increase public spending-the major driver of the economy under Mr Correa-at the same rate as in recent years.
    The fiscal deficit will widen to 1.3% of GDP in 2013, as Mr Correa continues to spend heavily on public projects while facing a higher bill for imported fuels.
    We expect inflationary pressures to remain mild during the estimate period (with annual inflation averaging 4%), as external food prices remain under control and request-side pressures remain moderate.
    We expect the current-account deficit to widen in 2013-14, as petroleum prices remain stable and as the closure for maintenance of Ecuador's major oil refinery leads to increased spending on imported fuel.

Review

    Remarks by Mr Correa and senior officials suggest that the ruling AP movement may attempt to push through a constitutional change that would allow the president to serve an additional term.
    Mr Correa has announced that an initiative to persuade rich nations to pay Ecuador not to extract an estimated 1bn barrels of oil that lie underneath a protected national park has been abandoned owing to a lack of uptake.
    Following the death of a soldier in a firefight on the Colombian border, Mr Correa has adopted a tougher line against Colombian guerrilla groups. His statements underline improving relations between the two nations.
    GDP data released by the Central Bank show that Ecuador's economy continued to slow in the initial quarter of 2013. Weakening investment and government consumption support our estimate of GDP increase of 3.8% in 2013.
    Remittances by Ecuadoreans working abroad fell in the initial quarter of 2013 as the weak US and Spanish labour markets continued to weigh on employment opportunities for migrant workers.
    Ecuador's trade account posted a modest deficit in the initial half of 2013, supporting our estimate that import spending-driven by rising imports of refined petroleum products-will rise while export increase stagnates this year.

Related Articles