Growth will be 1% for Ecuador in 2023, according to Citi, which also expects a short contraction of the economy in the region

The Ecuadorian economy will not see significant growth in 2023 or 2024. Citi Research considers that Ecuador will grow by 2.5% in 2022, but will see a slowdown in 2023 to 1% and in 2024 it would reach 2%.

These are not very optimistic growths that stem from a sort of vicious circle in which the Ecuadorian economy finds itself, product of the necessary economic correction (reducing the deficit, improving reserves) and the lack of incentives for investment, due to the uncertainty about what will happen at the political level in the next government.

Although Ecuador has improved its macroeconomic figures, the fear of investors is that a government will arrive that could be less orderly in its fiscal policy: “political uncertainty does not help; Nobody is clear about what economic framework Ecuador is going to have in three or four years, we believe that investment is going to remain low as it has been up to now,” he says. Fernando Díaz, Citi Research expert for Ecuador.

For Díaz, the Ecuadorian economy at the moment can be compared to a ball that is in a cone. It stays in balance, but if there were any shock, it can fall, there could be problems. In any case, he believes that the opposition, although large, does not have clear leadership, which makes it less effective. On the other hand, the popularity of President Guillermo Lasso is delimited or limited, he says. Díaz clarifies that the deficit and employment problems began in 2014.

Citi Research delivered its macroeconomic projections for the region and especially for Ecuador, Colombia and Peru.

About the topic, Ernesto Revilla, chief economist at Citi Research, believes that uncertainty is the sign of 2023, but a slowdown -rather short- of the economy is already expected, both globally and in the region. While Latin America will grow 3.3% in 2022, by 2023 a reduction in growth to 0.8% is expected for a recovery in 2024 that would reach 2%. Globally, growth is seen in 2022 of 3%, a drop to 1.9% in 2023 and a moderate recovery to 2.7% in 2024.

For Revilla, surely 2023 will be a year of economic recession. However, this will be staggered and by region. For example, the economic contraction is already establishing itself in the European area and would last until the first half of 2023, while in the US it will be felt in the second half.

Revilla considers that the greatest risk for Latin America will be the decisions of the US Federal Reserve, known as the FED, which will seek to continue raising interest rates, as a way to combat inflation that could end in 2022 at 7%. Rate increases that could be 1.5 points are always a headwind for emerging markets, he explains. Another problem can represent inflation, although it is thought that it has reached its highest peak and will rather begin a downward direction.

Growth in Latin America in 2023 is going to be low, but not as bad as one might think. Meanwhile, he believes that inflation has already reached its peak in the region and will now begin to decline, especially from the second half of the year. The depreciation of Latin American currencies in general will not be as strong.

Esteban Tamayo, Citi Research expert for Colombia and Peru, considers that the greatest risks in these two countries are political. Colombia has changed its government and has carried out an important tax reform, but not as deep as the one that had been discussed in the campaign; Social Security will be a topic of debate in 2023. For Colombia, it is expected to end with a growth of 7.5% in 2022, while for him 2023 it would be 1.4% and by 2024 it would reach 2.5%. Peru right now registers a complex situation with political instability. He considers that 20% of the population does support Pedro Castillo and that they are the ones who lead the social mobilizations. Peru would grow 2.8% this year and 2.9% in 2023; to finally culminate in 2024 with a growth of 3.5%. (YO)