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Ecuador Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 33 pages

Core Views

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 ChangesWe 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.

Table Of Contents

Ecuador Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Recession Will Extend Through 20168
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 9
TABLE: 10-YEAR GDP FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORT FORECASTS10
Fiscal And Public Debt Outlook 11
Deficit Set For Significant Widening In 201611
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 12
External Trade And Investment Outlook 13
External Imbalances Could Force De-Dollarisation13
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 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE15
TABLE: TOP FIVE GOODS IMPORTS IN 201415
TABLE: TOP FIVE GOODS EXPORTS IN 201415
Chapter 2: Political Outlook 17
SWOT Analysis 17
BMI Political Risk Index 17
Domestic Politics 18
Political Landscape To Shift Following Correa's Exit18
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 OVERVIEW18
Chapter 3: Operational Risk 21
SWOT Analysis 21
Operational Risk Index 21
Operational Risk 22
TABLE: OPERATIONAL RISK22
Trade Procedures And Governance 23
TABLE: IMPORT AND EXPORT DOCUMENTS23
TABLE: TRADE PROCEDURES BREAKDOWN23
TABLE: LATIN AMERICA - TRADE PROCEDURES AND GOVERNANCE RISK 24
Vulnerability To Crime 25
Chapter 4: BMI Global Macro Outlook 29
Global Macro Outlook 29
Unfinished Business In 201629
TABLE: GLOBAL ASSUMPTIONS29
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %30
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 30
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %31
TABLE: ECUADOR - MACROECONOMIC DATA and FORECASTS33

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