Country Report Paraguay July 2009

Outlook for 2009-10

• The political inexperience of the president, Fernando Lugo, who took office in August 2008, and the divisions within his coalition, will become increasingly exposed as he contends with rising social and political tensions.
• Although the Economist Intelligence Unit's forecast is based on the assumption that Mr Lugo will serve out his term, political stability may be impaired by increased social conflict.
• Policymaking will be complicated by the double challenge of adopting the appropriate measures to limit the negative impact of the global downturn on the domestic economy, and delivering on ambitious campaign promises.
• We expect the fiscal accounts to slip into deficit in the forecast period.
• Real GDP growth is projected to contract by 3.5% in 2009, before recovering modestly to 2.1% in 2010.
• A stronger than anticipated disinflationary trend means that inflation will end 2009 at 3.1%. We expect inflation to rise to 7.1% by end-2010.
• We anticipate that, despite an improvement in the trade deficit, a deterioration in the services and current transfers surpluses will leave the current-account deficit wider in 2009 and 2010.

Monthly review

• Miguel Carrizosa of Partido Patria Querida (PPQ) was elected president of the Senate, in a surprise step reflecting a political realignment in the upper house and adding to the woes of Mr Lugo.
• Congress rejected the introduction of a personal income tax for a third successive year, which is a major setback for the government's plans to raise social expenditure.
• The Colorado/UNACE majority also approved rises in the state pension for low-income earners and in selected public sector wages that will add to the fiscal deficit.
• The president retreated over a pesticide law in the face of planned protests, reinforcing his reputation as an increasingly weak leader.
• First-quarter GDP fell by 4.1% year 0n year, pushed down by a 23% contraction in agricultural GDP owing to a severe drought.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60;48;49;2834;80;47;1;15;10;70
NAICS Code: 336;52;517;22;3254;62;48;11;23;212;72