Bloomberg News

Ecuador GDP Grew at Fastest Pace Since 2008, Economists Say

June 30, 2011

(Updates with publication delay in second paragraph.)

June 30 (Bloomberg) -- Ecuador’s economy probably grew in the first quarter at its fastest pace in two years as higher oil prices fueled government spending, boosting job creation and consumer demand.

Gross domestic product probably accelerated in the January- through-March period from the last quarter of 2010, when GDP rose 6.98 percent year on year and 2.6 percent from the third quarter, according to four economists surveyed by Bloomberg. That would be the biggest jump in GDP since at least 2008. The central bank, which was due to report first-quarter growth today, delayed publication of its GDP report until tomorrow.

Windfall oil profits for Ecuador, the Organization of Petroleum Exporting Countries’ smallest member, and a Chinese loan boosted government liquidity in the first quarter, allowing President Rafael Correa to raise spending on projects, including roads and hospitals, by 44 percent, said Vicente Albornoz, director and head economist of the Cordes research institute in Quito.

“This enormous public expenditure will reflect in economic activity, not necessarily greater production, but at least increased consumption,” Albornoz said yesterday in a phone interview from Quito. “You only have to walk down the street to see the new cars, full restaurants and malls packed with shoppers buying packages, it’s impressive.”

Government Spending

Government spending rose 33 percent in the first two months of 2011 from a year earlier, according to the central bank’s most recent data. Export revenue, including oil which provides the government with 24 percent of its income, rose 25 percent in the first quarter, the central bank said. The $58 billion economy, South America’s seventh biggest, will grow 5.06 percent this year, according to the 2011 budget.

Ecuador also renewed a contract in February with PetroChina Co., China’s largest oil producer, for a $1 billion loan in exchange for future crude sales. The Finance Ministry said June 27 it signed an additional $2 billion loan with China Development Bank Corp. to finance budgeted public works projects.

To be sure, Ecuador’s economic growth is being hampered by populist economic policies, including its default on $3.2 billion of international debt since 2008, which has scared away foreign and local investment, Lutz Roehmeyer, who helps manage about $17 billion at Landesbank Berlin Investments, said yesterday in a telephone interview from Berlin.

Still, the combination of increased prices for the nation’s crude, up 14 percent this year, and rising global demand for higher yielding debt has made Ecuadorean bonds one of the best performers in emerging markets this year, Roehmeyer said.

Yields, Commodities

Yields on the Andean country’s 9.375 percent bonds maturing in 2015, the only foreign debt the government kept servicing after the default, fell 241 basis points, or 2.41 percentage points, this year to 9.562 percent. Similar maturity Brazilian bonds yield 1.979 percent, down 89 basis points from the end of December.

Higher commodity prices are “very good for the bonds,” Roehmeyer said. “Its only one bond and I think there are some hardcore investors that only look” at the yields.

--Editors: Robert Jameson, Richard Jarvie

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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