Ecuador's Economy: Recession in 2024 and Low Growth Projections for 2025
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.