Country Report Uruguay March 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.
• The fiscal deficit will widen 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 and regional forecasts, we now forecast a contraction in GDP this year, of 0.2%, with consumption, investment and trade all falling.
• The peso will weaken gently over 2009-10, ending 2010 at Ps25.6: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 both export earnings and import spending in 2009 has led us to revise down our forecast for the current-account deficit, to 2.4% of GDP from 2.7% in our February report.

Monthly review

• A third candidate has emerged in the campaign for the FA's presidential candidacy. Although Mr Carambula is unlikely to win the nomination, his entry will shake up the race between Mr Astori and MrMujica.
• Polls continue to suggest that the FA remains favourite to win this year's elections, but voting will be close.
• The focus on inflation control in recent months might risk undermining Uruguay's growth potential.
• Drought has continued to blight the agricultural sector, which is also feeling the pinch from lower soft commodity prices.
• Ence has halted construction of its large pulp mill, and is seeking a partner to continue with the project, dealing a further blow to investment growth potential this year.
• Growth in export earnings fell sharply in the fourth quarter of 2008.

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