IMF predicts continuing recession in Ecuador, with a drop of 4.5% of GDP in 2016

Apr 13, 2016 | 4 comments

In its latest report on the global economy, the International Monetary Fund confirms what most Ecuadorians already know. The economy is in a deep recession.

The IMF predicts that that the country’s gross domestic product (GDP) will contract 4.5% in 2016 and 4.3% in 2017. It also says that the unemployment rate will be 5.75% in 2016, a point higher than the 2015 average.

Christine Lagarde, director of the IMF.

Christine Lagarde, director of the IMF.

The IMF report blames Ecuador’s recession on several factors, including: low oil prices, lack of international competitiveness due to a strong U.S. dollar, which the country uses as its currency, and difficulty in securing loans on the world financial markets.

The IMF forecast contradicts Ecuador Central Bank’s economic forecast of 0.3% growth for 2016. A Central Bank spokesman said the IMF prediction is based on the assumption that the country will be unable to secure additional loans. “This is incorrect. In addition to cutting our budget, we are in the process of securing additional funding from international sources,” he said.

Ecuador is not alone among Latin American countries in receiving bad news from the IMF. Argentina, Brazil and Argentina, whose economies are in worse condition than Ecuador’s, according to the report, are predicted to see contractions of 2.8%, 3.8%, and 8% respectively.

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Overall, the economies of all Latin American countries are predicted to fall 0.5% in 2016.

The good news for Ecuador is that it has the lowest inflation rate of all Latin American countries, at 1.6%. By contrast, Argentina has an inflation rate of 20% while Venezuela’s stands at a whopping 482%.

To combat the deteriorating economy, Ecuador has slashed its national budget by almost 20% and is considering raising taxes on a number of consumer items.

While economists have praised the government’s budget-cutting, they say more needs to be done. “The next year or two will see hard times for the economy,” says San Francisco University’s Wilson Castro. “It’s always more prudent to make the difficult budget cuts earlier than later,” he adds.

Castro sees a possible silver lining in recent increases in oil prices. “They are still painfully low but the consensus is that they will be in $50 per barrel range by the end of 2016. If that’s the case, and they continue to rise, even slowly, we could see some recovery beginning by early 2017.”

 

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