The Central Bank of Ecuador's (BCE) latest report, released on January 15, 2025, paints a concerning picture of the Ecuadorian economy, which has experienced a decline for three consecutive quarters throughout 2024. While the full data for the final quarter is still pending, economist Alberto Acosta Burneo confirms that the country has likely slipped into recession.

The main factor contributing to this downturn is a sharp decline in private investment, which has heavily impacted the country’s Gross Domestic Product (GDP). Public investment has been consistently low for years, but in 2024, private investment fell most significantly.

Challenges Faced in 2024

Ecuador entered 2024 with a major liquidity crisis, prompting the government to implement tax reforms, including raising the Value Added Tax (VAT) from 12% to 15% and introducing new corporate taxes. Despite early reports in July 2024 suggesting that the recession had ended, the economy continued to struggle.

Additionally, the country experienced its worst electricity crisis in 14 years, leading to power outages lasting up to 14 hours in homes and up to 24 hours in industries. Combined with ongoing insecurity, drug-related violence, and the political uncertainty ahead of the 2025 presidential elections, Ecuador’s economic situation remained bleak.

Ecuador closed 2024 with the second-worst violent death rate in its history, further adding to the country’s struggles.

Economic Projections for 2025

Looking ahead, there is a glimmer of hope for Ecuador’s economy. Despite the challenges, international organizations like the BCE and the IMF predict that 2025 will be a better year for Ecuador.

The most optimistic forecast comes from the World Bank, which projects a 2% growth for Ecuador’s economy in 2025. Meanwhile, the IMF forecasts a 1.6% increase in GDP, factoring in the lasting effects of the electricity crisis. The Latin American Reserve Fund (FLAR) shares this projection, and the ECB expects a growth of 1.5%.

The least optimistic projection comes from the Economic Commission for Latin America (ECLAC), which foresees a modest 1.4% growth in 2025.

Factors That Could Drive Improvement

Economist Gonzalo Cucalón suggests that while the recovery will likely be slow, there are factors that could contribute to a gradual improvement. For instance, private banks have accumulated high liquidity in 2024, which should translate into more loans, investments, and consumption in 2025. Additionally, expected lower credit interest rates in the United States may stimulate both local and foreign investment in Ecuador.

The country’s electricity deficit, which reached critical levels during the worst drought in 60 years, is also expected to ease, though Ecuador remains reliant on energy imports from Colombia. The government's delayed efforts to secure new thermoelectric plants may offer some long-term solutions, though progress has been slower than anticipated.

The political landscape will also play a crucial role in shaping the recovery. As Ecuadorians await the new president and legislature in April 2025, the political climate will influence the level of dynamism in the economy. A more stable political environment post-election could encourage private investment, aiding the recovery in the latter half of the year.

Regional Comparison

Despite the expected recovery, Ecuador will likely remain one of the slowest-growing economies in South America in 2025. According to the IMF, Ecuador is projected to have the lowest growth in the region, with Bolivia expected to see a slight improvement. On the other hand, Argentina is predicted to experience the highest growth, with a 5% increase in GDP.

In conclusion, while Ecuador’s economy is expected to improve in 2025, its growth will likely be among the lowest in the region, with a slow but steady recovery dependent on factors like credit dynamics, electricity generation, and political stability.

Source: Primicias.

By the end of 2024, oil revenues will reach just over $1.3 billion, a sharp drop from $3.3 billion in 2014. This decline reflects a 2.5 times decrease in the sector’s contribution to public finances over the last decade, excluding brief periods of high prices like in 2022.

Production has also fallen, from 556,000 to 470,000 barrels per day, with each unproduced barrel representing lost revenue for public investments, forcing the state to rely more on debt. Taxes now provide the majority of government income, but they aren't enough to meet the country's needs.

As oil revenues shrink, Ecuador’s public debt has surged. The government increasingly relies on external borrowing to fund essential services and infrastructure, deepening the financial strain. This growing dependence on debt limits the country’s ability to invest in critical sectors, creating a vicious cycle of borrowing to cover gaps left by dwindling oil revenues.

Fernando Benalcázar, former Vice Minister of Mines, says Ecuador is facing its worst oil crisis in 50 years. Frequent leadership changes at Petroecuador, the state oil company, have led to inefficiencies, causing drops in production. For example, after Petroecuador took over Block 16, production fell from 15,000 to 10,000 barrels per day, costing the state millions.

The government has a plan to attract $10.5 billion in private investment, but Benalcázar emphasizes that the process must avoid past mistakes, like missed deadlines and ineffective bidding processes. Additionally, Ecuador’s closure of the ITT oil fields will cost over $1.5 billion and take up to 11 years for environmental recovery.

Source: La Hora.

• The World Bank projects Ecuador's economy to grow by 0.7% in 2024, placing it at the bottom of the region.

• Ecuador's GDP is expected to grow by 0.7% in 2024, as per the World Bank's latest projections for Latin American countries, released on July 16, 2024.

• The World Bank forecasts that Ecuador will have the lowest economic growth in Latin America in 2024. However, the organization predicts a recovery in 2025, with a 2% increase in GDP.

• Just over a year ago, in June 2023, the World Bank estimated that Ecuador's economy would grow by 2.8%, making the current outlook more pessimistic.

• Despite this, in June 2024, the World Bank projected a 0.3% growth for the country, so the current projection of 0.7% is slightly better. Nevertheless, it will remain the country with the lowest growth in the region.

• After Ecuador, Bolivia and Brazil are expected to have the lowest growth in South America, with 1.5% each. In the Caribbean, Haiti has the lowest projection at 1.3%, also below Ecuador.

• The highest growth in Latin America and the Caribbean is projected for Guyana at 38.2% and the Dominican Republic at 5.1%.

• According to the latest update of the World Bank's Economic Outlook, the regional economy will grow by 2.3% in 2024 and 2.5% in 2025.

Source: Primicias.