Household consumption will grow driven by higher remittances and consumer credit in 2023, but at a slower rate than in 2022.
The Central Bank of Ecuador (BCE) foresees a growth of 3.2% in household consumption for 2023, driven by an increase in consumer credit, lower inflation and a greater income of remittances to the country.
However, the increase expected for this year is less than that registered in 2022, of 4.6%. Household consumption is one of the elements that contributes to the country’s economic growth, which the ECB estimates at 2.6% by 2023.
One of the factors that will boost consumption is an increase in consumer credit, says the ECB, in its report on the evolution of the Ecuadorian economy in 2022 and prospects for 2023.
Between January and February 2023, private, mutual and cooperative banks delivered USD 2,315 million, that is, USD 324 million more than in the first two months of 2022, according to data from the Superintendency of Banks.
However, the fact that consumer credit is the segment that grows the most, even more than the productive one, is a problem for the economic development of a country, explains Juan Javier Jarrín, director of Investigations of the consulting firm Inteligencia Empresarial.
«In the short term, the economy grows from consumer credit; but, in the long term, the economy needs investment for the productive matrix to grow, otherwise there will be an increase in demand, but not in supply”, explains Jarrín.
Jarrín adds that this imbalance causes an economic slowdown. “Estimates suggest that an economy does not grow for more than two years driven by consumer credit,” he says.
An indicator that reflects how consumption is in the country is domestic sales.
In January 2023, domestic sales closed at USD 13,950 million, which represents an increase of 8% compared to the same month in 2022. However, there was a slowdown in growth, taking into account that in January 2022 the increase YoY was 17%, according to the Internal Revenue Service.
By economic sector, the one that invoices the most and, in turn, boosts household consumption is commerce. In 2022 this activity closed with a turnover of USD 80,865 million, which represents a growth of 12% compared to 2021.
However, for 2023, a more conservative increase is projected for the sector, of 5.2% in its internal sales, forecasts the Quito Chamber of Commerce.
The economic chief of the Chamber, Luis Naranjo, explains that this is because after the drop in billing in 2020 due to the pandemic, the sector had significant increases because it was recovering.
Once it’s done, the growth rate slows down. “Although sales have recovered, employment is not increasing at the same speed,” recalls Naranjo.
In February 2023, only 32.9% of the country’s workers had adequate employment, that is, they earned at least a basic salary, according to the National Institute of Statistics and Censuses.
While informality continues to increase: 54.3% of employed people were in this situation as of February. More remittances A greater inflow of remittances to the country will also boost household consumption in 2023, says the ECB report. In 2022, the country received remittances for USD 4,743 million, which represents an increase of 9% compared to 2022, according to the ECB.
70% come from the United States, the country with the largest number of Ecuadorian migrants.
Jarrín explains that the United States is injecting money into the economy, which could help increase the remittances that arrive in the country, as happened in the pandemic.
“Everything is a chain. If remittances increase, household consumption also increases,” says Jarrín.
The third factor that will affect household consumption in 2023 is lower inflation than that perceived in 2022. In March 2023, annual inflation, that is, of the last 12 months, closed at 2.85%, according to the National Institute of Statistics and Censuses. Compared to the annual inflation of March 2022, there was an increase of 0.21 percentage points.
However, prices are increasing at a slower rate than before, taking into account that from March 2021 to March 2022 there was a change from deflation of -0.83% to inflation of 2.64%. In other words, there was a rise of 1.83 percentage points in inflation. Jarrín adds that international inflation is also giving way due to measures that central banks have been applying in different countries. “This will make the consumption of imported food cheaper,” he says.
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