Country Report Uruguay September 2009

Outlook for 2009-10

• Jose Mujica, of the ruling centre-left Frente Amplio (FA) coalition, is narrow favourite to win a second-round presidential election on November 29th, which would see him take office for a five-year term in March 2010.
• Following this year's elections, and assuming that an economic recovery is under way, the policy focus will turn from measures to stimulate growth and support employment towards bringing down the fiscal deficit.
• The fiscal deficit will widen to 2.6% of GDP this year, owing to strong rises in expenditure. Despite a moderation to 1.7% of GDP next year, public debt will remain high at over 55% of GDP.
• 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.
• Leading indicators suggest that the economy started to pull out of recession in the second quarter, supporting our view of a full-year contraction of 0.2% in 2009, with steady growth in the second half and slow growth of 1.5% in 2010.
• Inflation will remain above or close to the upper end of the 3-7% target throughout the forecast period, with inflationary pressures provided by firm real wage growth this year and recovering demand growth in 2010.
• After narrowing to 0.4% of GDP this year, owing to a lower merchandise trade deficit, the current-account deficit will widen again in 2010, to 2.5% of GDP as merchandise import growth returns.

Monthly review

• Mr? Mujica has strengthened his lead over his main rival, Luis Alberto Lacalle of the centre-right Partido Nacional (PN), ahead of the presidential and primary elections on October 25th.
• Mr? Lacalle's campaign has faltered in the past month, leading him to adopt more negative campaigning, which has also failed to strike a chord with the electorate, according to recent polls.
• The fiscal accounts were boosted in July by improved performances from state companies and from a one-off transfer from a state bank to the central government. Nevertheless, expenditure growth remains very strong.
• There are indications that the economy has stabilised and that growth has resumed in the third quarter, although the picture remains mixed.
• Strong rises in real wages have brought them back to levels that endured before the 2001-02 crisis.
• Subsidy cuts have pushed inflation above target for a second month running.

Source: Country Report

This report covers the following industry codes:
SIC Code: 48
NAICS Code: 517