Bloomberg News

Ecuador GDP Rises Most Since 2008 on Utilities, Construction

September 29, 2011

(Updates with central bank president’s comment in third paragraph.)

Sept. 29 (Bloomberg) -- Ecuador’s economy grew at its fastest pace since 2008 in the second quarter as windfall oil profits and Chinese loans helped boost spending on public works projects and spur consumer demand, the central bank said.

Gross domestic product expanded 8.88 percent from the year- earlier period and gained 2.2 percent from the previous three months, the bank said today in a report distributed in Quito. Growth this year will exceed the Finance Ministry’s 5.24 percent forecast, Central bank President Diego Borja said.

Chinese lending has been “very important” and oil “continues to be a key factor,” Borja, a 47-year-old economist, said. “All external and public debt is used for investment and such high levels of investment are due to loans from China as well as other countries.”

Higher oil prices and Chinese loans have financed increased government spending in South America’s seventh-biggest economy. The subsequent increase in liquidity and jobs growth boosted consumer credit, Santiago Caviedes, chief executive officer at Quito-based research firm Humboldt Management, said today in a telephone interview.

“There’s a big increase in construction, obviously because of public spending,” Caviedes said. “This liquidity is being recycled into the financial system, which ends up in credit” for consumers.

Caviedes said there haven’t been any signs of an economic slowdown in the third quarter and that the economy may grow faster than 7 percent this year.

Chinese Loans

Borja initially told reporters that the economy expanded 8.8 percent in the second quarter. Utility services surged 35 percent from the previous year, while construction grew 26 percent, according to the central bank.

Ecuador 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 that it signed an additional $2 billion loan with China Development Bank Corp. to finance public works projects and announced July 1 it will get a $571 million loan from the Export-Import Bank of China to build a hydroelectric plant in the southern Andes.

A weaker U.S. dollar, the nation’s official currency, has also made the country’s exports more competitive in international markets, Quito-based think tank Quantum Informe said in a Sept. 20 report.

Ecuadorean Debt

“Ecuador’s positive economic outlook is sustained by the high price of oil and the weakness of the dollar,” former Finance Minister Alfredo Arizaga, chief economist at Quantum, said in the report. “With the current level of income from oil, it’s very unlikely that economic stability will be compromised in the next six months.”

Ecuador, which defaulted on $3.2 billion of foreign bonds in 2008 and 2009, had its credit rating outlook raised to positive from stable by Standard & Poor’s Ratings on Aug. 4, on better growth prospects. S&P rates Ecuador B-, six levels below investment grade.

The yield on Ecuador’s 9.375 percent bonds maturing in 2015 fell 8 basis points to 9.55 percent at 3 p.m. New York time, according to JPMorgan Chase & Co. The bond’s price rose 0.26 cents to 99.38 cents on the dollar.

Ecuadorean government debt is the third-riskiest after Venezuela and Argentina among 15 emerging markets tracked by JPMorgan Chase & Co., according to the bank’s EMBI+ indexes.

Prices for Ecuador’s Oriente crude have risen 14.6 percent this year, in part because of conflict in the Middle East and energy shortages in Japan, the world’s third-biggest crude user, following the March earthquake, according to Economic Policy Minister Katiuska King. Ecuador’s crude prices averaged $103.40 per barrel in the second quarter, $30 more than forecast in the 2011 budget, according to the central bank.

The International Monetary Fund last week raised Ecuador’s 2011 GDP growth forecast to 5.8 percent from 3.2 percent, according to its World Economic Outlook report.

--Editors: Philip Sanders, Robert Jameson

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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