Country Report Uruguay June 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 towards the official target 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 68.2% of GDP by end-2010.
• The 8.2% forecast fall in global trade this year, with sharp falls in Brazilian and Argentinian import demand, will lead to double-digit falls in Uruguayan export volumes.
• 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 firmly moving towards target, helped by the start of a deflationary period in producer prices, but a more rapid fall in inflation will be hindered by continued strong real wage growth.
• The current-account deficit will narrow to 1.3% of GDP this year, from 3.5% in 2008, owing to a narrowing of the merchandise trade deficit, before widening in 2010 to 1.7% of GDP, as the services surplus narrows.

Monthly review

• The leading candidates from the two parties that offer realistic hopes of winning the presidency in 2010-15 are trying to claim the centre ground, where each is perceived to be weakest.
• The ruling centre-left FA coalition has published its manifesto for 2010-15, promising policy continuity and progress in the reform process it started in 2005.
• With inflation having fallen to within 0.1 percentage points of target, expectations have increased of a relaxation in monetary policy.
• Higher electricity costs during a prolonged drought are restricting the scope for a fiscal boost, although the fiscal accounts so far this year have held up better than expected.
• There have been mixed signals in the first half of the year concerning the evolution of economic growth, with industrial output falling but wages and employment holding up better than expected.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22