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Ecuadorian economy falls 5.6% in the first quarter of 2021

Published on July 06, 2021

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Ecuador had a negative annual growth of its economy in the first quarter of 2021. The result was -5.6%. This negative result, which compares the growth obtained in the first quarter of 2020 (the last almost normal quarter before the pandemic) with the first quarter of 2021, is due to the fall in government consumption (-8.5%) and Gross Fixed Capital (FBKF) or investment (6.3%); as well as household consumption, which was -3%.

This was reported by the new manager of the Central Bank, Guillermo Avellán Solines, in his first appearance in front of the media. According to Avellán, among the industries that had a more complex behavior are construction with -10.4%; domestic service with -9.2% and accommodation and food services with -9%.

There were sectors that did grow, in the first quarter of 2021: fishing with 16.2%, communications 4.3% and oil refining with 3% per year. Avellán said that in January and February, the forecast was that the drop would be worse than it actually was. In 2020, the country also registered an annual drop of 7.8%.

An analysis of the first quarter compared to the fourth quarter of 2020, showed a slight economic recovery, of 0.7%. This was due to the 3.5% growth in consumer spending by households and the 2.8% increase in the FBKF. The industries that sustained growth were fishing with 15.2%, lodging with 3.1% and manufacturing with 2.4%.

Avellán also said that the country’s current growth forecasts in 2021 is 2.8.

The Central Bank Manager also announced that they are working on a new interest rate methodology, relying on inputs from the Superintendencies of Banks and the Popular and Solidarity Economy, and that an agreement was signed with the Ministry of Economy and Finance, through which the way to recapitalize the Bank was established, through the repurchase, by the Ministry, of the public banking shares that the Correa gave the bank to get loans for the treasury.

Construction, domestic workers and tourism, were worst hit sectors in first quarter

Construction (-10.4%), paid domestic workers (-9.2%) and accommodation and food services (9%) were the hardest hit sectors in the first quarter of 2021, comparing them with the first quarter of 2020. The poor performance has several origins in each case, but a common denominator is the lack of liquidity and the contraction of activities in general due to the pandemic.

Silverio Durán, former president of the Chamber of Construction Industries, explains that construction has performed poorly, especially due to the lack of investment in government infrastructure. He says he understands that the investment was almost nil in the government of former President Lenín Moreno, due to the problems of the pandemic and the conditions in which he received the administration.

However, he thinks that with the opening of the new government of Guillermo Lasso there will be more foreign investment, which is what is needed. He says that despite this, the private sector has not stood idly by and has sought to promote housing, but it has been difficult as job losses and lack of liquidity have discouraged purchases.

Lenny Quiroz, secretary general of the National Union of Domestic and related Workers (Untha), relates that in this period domestic workers saw a deterioration in their jobs. Many lost it, but others had to undergo less convenient conditions. For example, becoming “inside” workers, ceasing to see their families. In many cases those who were fired did not receive any compensation, he says. He explained that there are no exact figures for how many jobs have been lost, but he says that many of those who left started small businesses.

When asked about the future prospects, Quiroz comments that they expect an improvement in the remainder of 2021. They feel that with the gradual normalization of activities, the Labor inspectorates may also return to monitor employment conditions.

He believes that with vaccination, but also with the management that is already done of the virus, and that people have learned to live with it, job opportunities will improve.

Holbach Muñeton, President of the Federation of Ecuadorian Chambers of Tourism and Vice President of the Ecuadorian Business Committee (CEE), says that the fall in the accommodation and food sector has been very strong, due to the decrease in international tourism and the low activity of national tourism. He believes that to improve the outlook, the sector requires credit and time to pay current debts.

He added that this sector is not helped by decisions such as those recently made by the COE in such a that hotel lounges will only be able to open until midnight. “This lack of certainty affects us,” he says. In July, hotels have between 40% and 65% occupancy, but with a rate of 50% of the normal rate. He said that the new minister, who has good will, can apply a public policy in favor of the sector.

Jaime Carrera, Executive Secretary of the Fiscal Policy Observatory, believes that this low performance of the first quarter, means the annual growth will not reach more than 2.5%, which would be one of the worst results of the region. He acknowledged that there will be a rebound next quarter but believes that it will not be enough to achieve better indicators.

Cordes says that it expects that in the following quarters the country’s indices will recover, especially due to the better economic conditions, the advance of the vaccination plan and considering that future comparisons will be against very low figures, registered in the most difficult moments of the pandemic in 2020.

Fishing, communications and refining sectors lead growth

In the first quarter of 2021, compared to the same period in 2020, some sectors performed well despite the pandemic and the crisis: fishing, with a growth of 16.2%; mail and communications, with 4.3%, and crude oil refining, with 3.8%.

Bruno Leone, President of the National Fisheries Chamber, said that there have been factors that have generated this important growth. The innovation that the sector has made, by placing new products such as frozen steak. In addition, the increased expenses of transport and freight has in some way helped the sector to recover markets in South America, as the Thai product has been withdrawn due to costs.

According to the Chamber, fishmeal exports increased 28% in volume, and frozen fish rose 112%, mainly due to higher exports of mackerel. The increase in frozen mackerel was almost $16 million above last year. The sale of canned small pelagic fish increased in volume by almost 11%, and canned tuna rose by 3% in terms of weight. In aggregate, all fisheries exports increased 19% in volume and 9.11% in dollars in the first quarter.

As for mails and communications, this activity is directly related to telecommunications, says José Hidalgo, Director of Cordes. During the pandemic, the contracting of internet and telephony services, both by teleworking and by non-face-to-face education of children, has caused this sector to have significant growth.

Finally, oil refining has also increased, especially with optimization of activity, compared to 2020. In 2020, refining was in the order of -7% and now reached 3.8%, according to ECB data.

7.8% fall in 2020 was not unexpected

According to the consulting firm Cordes, the 7.8% fall in Ecuador’s economy in 202 was a predictable result, taking into account that between January and March of last year the country went through only fifteen days of confinement, whereas in the first quarter of this year some form of restriction measures were in force (for example, maximum capacity or restrictions on vehicular mobility) for the entire quarter and, above all, the impacts that the pandemic caused on variables such as employment and income of households were present.

Cordes also acknowledged that it had hoped the figure would not be so low (its previous estimate had been -4.1%).

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