Country Report Uruguay July 2009

Outlook for 2009-10

• The October 2009 presidential and congressional elections will be closely fought. The next government is unlikely to enjoy a parliamentary majority, leading to a more challenging policymaking environment.
• With inflation now firmly on a downward trend and within the official target range of 3-7% and economic growth slowing, economic policy will focus increasingly on measures to stimulate growth and support employment.
• The fiscal deficit will widen to 2.4% this year, owing to weakening revenue growth and rising expenditure; despite a moderation to 1.9% of GDP next year, public debt will rise once again, to a forecast 68.1% of GDP by end-2010.
• Although forward-looking economic indicators in the developed world have improved, global growth is unlikely to return to the recent trend rate for several years.
• We expect Uruguay's GDP to contract this year by 0.2%, with trade and investment falling sharply, along with a modest retrenchment in private consumption. The 2010 recovery will be mild, raising output by 1.5%.
• Inflation is back within target, and its continued gradual fall in 2009 will be helped by deflationary producer prices. However, a more rapid fall in inflation will be hindered by continued strong real wage growth.
• The current-account deficit will narrow to 1.5% of GDP this year, from 3.8% in 2008, owing to a narrowing of the merchandise trade deficit, before widening in 2010 to 2.5% of GDP, as the services surplus narrows.

Monthly review

• A polarised election campaign appears unlikely, as both main official candidates??