Country Report Uruguay January 2010

Outlook for 2010-11

• Jose Mujica, of the centre-left Frente Amplio (FA), takes office for a five-year term on March 1st. Although he will enjoy a twin parliamentary majority, he will reach out to the opposition to reach consensus on state reform.
• The FA's manifesto includes an ambitious target to increase investment to 30% of GDP by 2015 (from 17.7% in 2009); the government will look to encourage greater investment in renewable energy as part of this strategy.
• After widening to 2.6% of GDP in 2009, owing to countercyclical spending rises, the fiscal deficit will narrow to 0.6% by 2011.
• Following strong third-quarter growth, we have made an upwards revision to our estimate for growth in 2009 (to 1.8% from 0.5%), as well as to our 2010 and 2011 forecasts (to 3.7% and 3.1%, from 3%), led by solid domestic demand.
• Inflation will remain above or close to the upper end of the 4-6% target range throughout the forecast period, with inflationary pressures provided by recovering demand growth and higher commodity prices.
• After recording a small surplus this year, owing to a lower merchandise trade deficit, the current account will return to a deficit averaging 1% of GDP in 2010-11, as merchandise import growth returns.

Monthly review

• Mr Mujica has acted pragmatically and reached out for consensus during the transition process, dispelling fears voiced by critics during the election campaign that he would be an inconsistent, volatile and polarising figure.
• The opposition will be represented on the boards of public companies, and be involved, along with trade unions, in negotiations to formulate policies on education, state reform, public security, the environment and energy.
• The new economic team, headed by a former chief macroeconomic adviser, Fernando Lorenzo, promises continuity in the broadly market-friendly economic model of the outgoing administration.
• The new economic team is preparing to draft a new five-year budget plan, which will be shaped by efforts to reduce public spending and control inflation in an environment of strengthening domestic demand.
• Strong third-quarter growth of a seasonally adjusted 2.5% quarter on quarter (and upwards revisions to second-quarter growth) have led us to revise up our full-year growth estimate for 2009 to 1.8%.
• The most significant upwards adjustments were made in estimates for gross fixed investment, with strong rises in fixed public investment offsetting second- and third-quarter falls.

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Mr Mujica reaches out to opposition during transition
• The political scene: New ministry to oversee state reform is yet to be finalised
• Economic policy: New economic team promises policy continuity
• Economic policy: Five-year budget to test the new economic team
• Economic performance: Strong third quarter raises full-year growth estimate to 1.8%
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure