Global inflation reduces the arrival of remittances to Ecuador

The arrival of remittances in 2022 will depend on the actions the United States and the European Union take to deal with inflation.

input Transfers (a) Ecuador, which has had historically high levels since 2021, is now experiencing a slowdown.

In the first quarter of 2022 Remittances into the country amounted to 1,103 million US dollars, or 19.7% compared to the same period in 2021.

But the flow of remittances fell 8.8% in the first quarter of 2022 compared to the last quarter of 2021.

The flow of remittances is likely to be less this yearconfirms the former Finance Minister, Alfredo Arizaga.

More inflation, less transfers

According to the Central Bank, the decrease in the rate of arrival of remittances to Ecuador in the first months of 2022 is due to two factors.

The first is the increase in food and energy prices in the world, leading to a deterioration Purchasing power of Ecuadorean immigrantsThat’s why they send less money to their relatives.

“In the countries where Ecuadorean immigrants reside, employment has been preserved, but ability to save Arizaga, who is also director of SEK University’s School of Business, says the number of these families has fallen due to increased inflation.

Inflation is due to Subsidies and cash transfers Which many countries have done for their residents in the form of financial relief packages in the midst of the Covid-19 pandemic.

The current inflation can also be explained by the partial breakdown of supply chains, new restrictions due to Covid-19 infections in China and, later, by Russian invasion of UkraineFactors that changed international trade.

The second phenomenon that limits the flow of remittances is the low growth of countries, and even a possible global recession.

Fears of an economic recession have increased in the world’s major economies Due to persistent problems in the supply chain, The World Bank says the new restrictions are due to the increase in Covid-19 infections and the risk of sluggish inflation.

Bad year for America

United States, where The largest settlement of Ecuadorean immigrantsit will reach growth of just 2.8% in 2022. That is 1.2 percentage points lower than what the Federal Reserve System projected in December 2021.

During the first quarter of 2022, the gross domestic product of the United States Contractor 1.4% Because of the resurgence of Covid-19 cases.

In addition, the US economy contracted with food and gasoline prices skyrocketing, The consumption capacity of families has deteriorated.

While in Italy and Spain, where a large number of Ecuadorean immigrants live, there are also GDP decreased In the first three months of this year.

restricted consumption

The downward trend in remittances could continue for the rest of the year if the US decides to raise interest rates to contain inflation, A movement that will weaken job creation.

The most vulnerable jobs are those of immigrants.

In contrast, a decrease in the flow of remittances is a curb on home consumption Ecuadorians, who allocate these resources to pay for housing, food, and health.

Families receiving remittances belong to the middle and lower socioeconomic classes, which are those that They feel more declining in their purchasing power.

There are signs already seen in Ecuador. For example, household consumption slowed in the first quarter of 2022, growing by 6.7%, which is equivalent to 1.9 percentage points less compared to the fourth quarter of 2022.

Low consumption means, in turn, a decrease in economic activity. In other words, less people spending means lower GDP performance.

The central bank expects to be Ecuadorean economy grows 2.8% in 2022, after a 4.2% rebound in 2021.