El golpe avisa—the blow warns
Q2 2025 showed mixed signals of economic recovery, supporting the official GDP growth rate of 3.5% for this year. Non-oil exports registered growth of 5.6% q/q, although bananas and natural flowers showed declines of 26.8% and 18.5%, respectively. Tariffs of 15% imposed by the US on Ecuador will not help these products, especially flowers—these compete with Colombia, which received a lower tariff of 10%.
Imports and inflation also speak of a more active economy. Total imports are up 8.8% q/q, with imports of consumption goods increasing 19.7% and raw materials up 17.2% q/q. Also, cumulative inflation, which was 0.027% on average in Q1, rose to 1.27% in Q2.
Total gross credit was up 9.6%, and total deposits grew 17.1% y/y between January and July. However, these measures fell 9.01% and 2.26%, respectively in Q2 compared with Q1. Also, consumers' perception of the economy is higher this year, with the Consumer Confidence Index at 36.5 compared to a low of 27.18 in Q1 2022. However, the index has been stagnant since 2024—a lack of optimism that is probably rooted in the lack of employment and ongoing violence in the country.
An old Ecuadorian saying, el golpe avisa or “the blow warns” signifies a blow received without warning. This accurately describes the actions and decisions of the current government, which have often come as a surprise to many. The recent unexpected announcement to separate 5,000 public servants from Petroecuador, CELEC and the Central Government, as well as the announcement of an intended tax on corporate retained earnings and an increase of 2% in taxes on dividends, are two good examples of President Noboa's management style.
We fully support the first measure—a long awaited adjustment that was undertaken neither by President Moreno nor Lasso—but it has brought an expected negative reaction from the unions, which submitted a demand of unconstitutionality to the Constitutional Court. The timing is complicated: President Noboa and his government are at odds with the Court, which has temporarily blocked some articles related to national security and control of organized crime contained in the bills sent by the executive as economically urgent—bills that were approved by the official majority in Congress. President Noboa reacted strongly, calling for a public demonstration against the Court. The protest, which took place last Tuesday, August 12, was large and peaceful, but it received national and international criticism because it was viewed as an interference with another branch of government—a common situation during the presidency of Rafael Correa that most Ecuadorians rejected.
We strongly support the division of powers to guarantee democracy, but it is also a fact that the current Constitutional Court has made some controversial rulings, for example, when it accepted an increase of $1b in salaries for teachers without existing public resources, as the Constitution mandates, and when it ruled in favor of the suspension of ITT activities in the absence of a "Plan B" to replace those revenues critical to the country. We hope the current impasse is resolved through dialogue and common sense, thereby avoiding a further weakening of the fragile institutional system in Ecuador and allowing the Executive to continue its actions against organized crime.
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