Weekly Report - 06 October 2011 (WR-11-40)

ECUADOR | Growth soars. The economy grew by 8.9% year-in-year in the second quarter, according to the director of the central bank, Diego Borja. Unemployment fell back from 7% in the first quarter to 6.4% in the second quarter, the pre-crisis level. Borja said that the impressive GDP growth figure meant that the 8.6% growth posted in the first quarter was not an isolated event. Perhaps. The main reason for the GDP growth, however, is a 17.2% surge in investment, “mainly credits from China”, to quote Borja. This helped spur the construction sector, which expanded by 25.9%, through increased spending on public works and housing, as well as providing liquidity in the financial system for more credit: domestic consumption increased by 6.9%. It also explains how non-oil GDP growth reached 9.8%. President Rafael Correa, speaking on his weekly broadcast Diálogo con el Presidente, said this was the most important figure released by the central bank as it vindicated the government’s public policies. 
The opposition accuses Correa of presiding over debt-driven growth, mortgaging the country up to the hilt with China, which has provided multi-billion dollar loans to Ecuador in exchange for future crude sales. Prices for Ecuador’s Oriente crude have risen 14.6% in 2011. As things stand, the government is in a strong position because crude prices averaged as much as US$103.40 per barrel in the second quarter, US$30 more than forecast in the 2011 budget, according to the central bank. Coupled with competitive exports, due to the weaker US dollar, this should help maintain high growth throughout the second half of the year. Correa said Ecuador would require 5% plus GDP growth for the next 30 to 40 years to eradicate poverty completely.