Ecuador Country Risk Report Q2 2016
The persistent weakness in oil prices will dampen Ecuador's hydrocarbonsector production growth, weighing on both economic growthand government revenues in the years ahead.
Ecuador's balance of payments dynamics will come under sustainedpressure in the coming years. Low oil prices and uncompetitivemanufacturing sector exports will widen the current account balance.
Meanwhile, deteriorating economic prospects within the extractivesector will dampen foreign direct investment, straining the financialaccount.
Social unrest will rise in the years ahead as the government increasesfiscal consolidation and limits minimum wage hikes during a period ofsubdued economic growth. The country has a long history of protestsagainst extractive sector activity and the economic slowdown willonly add to this.
Major Forecast Changes
We have downgraded our real GDP growth estimates and forecastsfor 2015 and 2016 from expansion of 1.6% and 1.8% respectively,to contractions of 0.8% and 0.9%. We expect oil price weaknesswill lead to contraction in fixed investment.
We have revised down our fiscal forecasts, and now expect shortfallsof 7.9% of GDP in 2015 and 8.6% of GDP in 2016. We highlight thatthe non-oil revenues and the government's efforts to limit spendingwill not be able to offset the decline in hydrocarbon sector income.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Recession Will Extend Through 2016
- Ecuador's recession will continue in 2016 as weak oil and gas investment erodes fixed capital formation and weakens the labour market.
- Thereafter, Ecuador will only experience modest levels of growth as the dollarisation of the economy limits its ability to rebalance away
- from dependence on oil exports.
- GDP By Expenditure Outlook
- TABLE: 10-YEAR GDP FORECASTS
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORT FORECASTS
- Fiscal And Public Debt Outlook
- Deficit Set For Significant Widening In 2016
- Ecuador's fiscal deficit will expand significantly in the years ahead as revenue contracts for a second consecutive year in 2016 and the
- government fails to follow through with proposed spending cuts. The government will finance the growing shortfall through issuing new
- debt on international markets, risking a deterioration in sovereign credentials as interest payments grow.
- Structural Fiscal Position
- External Trade And Investment Outlook
- External Imbalances Could Force De-Dollarisation
- The probability of a de-dollarisation of the Ecuadorean economy in the coming years is growing as a change in currency regime could
- become the path of least resistance for a necessary rebalancing of external accounts. Low oil prices will widen the current account
- deficit while foreign direct investment will wane, putting the government on an increasingly unsustainable path of financing the external
- shortfall through debt issuance.
- Outlook On External Position
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- TABLE: TOP FIVE GOODS IMPORTS IN 2014
- TABLE: TOP FIVE GOODS EXPORTS IN 2014
- Chapter 2: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Political Landscape To Shift Following Correa's Exit
- Ecuadoran President Rafael Correa will not run for a third consecutive presidential term in 2017 even as local sources have begun to
- suggest that the president will attempt to circumvent constitutional regulations on term limits. Without Correa on the 2017 ticket, the
- ruling Alianza PAIS will likely suffer modest losses as coalition cohesion will be undermined.
- TABLE: POLITICAL OVERVIEW
- Chapter 3: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK
- Trade Procedures And Governance
- TABLE: IMPORT AND EXPORT DOCUMENTS
- TABLE: TRADE PROCEDURES BREAKDOWN
- TABLE: LATIN AMERICA – TRADE PROCEDURES AND GOVERNANCE RISK
- Vulnerability To Crime
- Chapter 4: BMI Global Macro Outlook
- Global Macro Outlook
- Unfinished Business In 2016
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: ECUADOR – MACROECONOMIC DATA & FORECASTS