Country Report Uruguay February 2009

Outlook for 2009-10

• The political scene will increasingly be dominated by the October 2009 presidential and congressional elections, which will be close. The opposition will try to capitalise on divisions in the ruling FA and its economic record.
• Economic policy will focus on cushioning the economy from the worst of the global economic crisis and bringing down inflation.
• We have revised our forecasts for the fiscal deficit in 2009-10 (from an annual average of 1.7% of GDP in our January report to 2.5% this year and 1.9% in 2010 owing to worsening prospects for revenue growth.
• We have made further downward revisions to our global growth forecasts, with recent data pointing to sharp falls in both industrial production and demand across major world markets.
• Owing to a fourth-quarter domestic slowdown and revisions to our global forecasts, we have revised our GDP forecasts for Uruguay in 2009-10 down, from 2% and 3.3% in our January report to 1.5% and 2% now.
• The peso will weaken gently over 2009-10, ending 2010 at Ps25.1:US$1. The rate of depreciation will be softer in 2009 than in the second half of 2008, owing to strong reserves coverage and a narrowing external deficit.
• A cut in our forecast for export earnings in 2009 (owing to cuts in our forecasts for prices) has led us to revise our forecast for the current-account deficit, to 2.7% of GDP from 2% in our January report.

Monthly review

• The ruling Frente Amplio has lost ground in opinion polls tracking voting intentions.
• The two main parties are approaching the primary elections with a choice of two realistic presidential candidates each.
• The Central Bank has raised its reference interest rate by 225 basis points to rein in inflation.
• The fiscal accounts weakened in 2008 despite Uruguay recording the strongest economic growth in Latin America.
• Fourth-quarter indicators point to a sharp slowdown in economic growth.
• The agriculture sector is being hit by both a long drought and a sharp fall in international soft commodity prices.
• International conditions are affecting investment decisions, with Ence now scaling down construction of its pulp mill, and Rio Tinto suspending port investment plans.

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11