2023-07-23 04:17:20
As its calendar indicates, the Central Bank of Ecuador (BCE) published this week the Report on the Economic Cycle. Data as of March for the GDP cycle and May 2023 for its composite indicators (leading and coincident). To build its Leading Indicator of the GDP Cycle, it uses five variables that are the national production of crude oil, the International Price Index for food and non-alcoholic beverages, demand deposits, imports of durable consumer goods and imports of industrial raw materials. By combining these variables, it achieves a high correlation of 81.7% and shows the behavior of the GDP cycle 4.8 months in advance.
Individually, I prefer to observe the importation of industrial raw materials due to its 79% correlation with the GDP cycle and its average of five months in advance. In a simple way, it can be interpreted that what has happened to the import of raw materials happens to the GDP, on average, following five months. For more than a year the import of raw materials has been slowing down and since January 2023 the slowdown has been stronger. If in an economy its imports of raw materials grow more and more slowly, it is not very difficult to suspect that the economy will do the same.
A few weeks ago the ECB indicated that the economy had grown 0.7% annually in the first quarter of 2023. We have not seen that growth expectations for the full year have changed and they continue to hold it at 2.6%, when from the methodology used by the ECB it is clear that the second quarter continued in the deceleration zone and the current third quarter might continue to decelerate, but now below the normalized long-term average growth.
You can always achieve a consolation. The part of the cycle that we will find ourselves in in the third quarter today includes the United States, France, India, Italy, Japan and the United Kingdom. All of them, according to the ECB report, as of May 2023 within the Cycle phase, are decelerating under trend. The complex part is that those countries might recover by the end of the year, while we must continue to assess how the electoral process and El Niño affect us for the last quarter of the year. Our roller coaster might come with a somewhat longer decline and distance us from the official target, which, as was said in this column weeks ago, might be closer to 1% than 2.6% when we think regarding real GDP growth.
Being four Sundays from the electoral process, there is very little that the Government can do to change the declining trend of the economy. It also seems that he has very little desire. There are things that you can embark on depending on the result of the consultation on Block 43. In the event that you decide to leave the crude on land, the next day you might start the process to repeat a bond repurchase that allows you to achieve a reduction between USD 1,000 and USD 1,500 million that offsets the investment by Petroecuador and has not been amortized. And, following the second round, target subsidy. Once and for all that memory.
1690089906
#roller #coaster
