Uruguay growth

Uruguay plans to expand local capital market

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Uruguay seeks to develop further its local capital market aiming to increase the number of financing opportunities for technology start-ups and other businesses while promoting foreign investment.

“We want to lay the foundations to have a financial ecosystem,” Economy Minister Azucena Arbeleche told an an online event hosted by the Americas Society/Council of the Americas (AS/COA) on Thursday (July 29).

Uruguay’s economic output dropped 2.8% year-on-year in the first quarter of 2021, following a 2.9% decline in the previous period. This was the sixth consecutive quarter of contraction in GDP.

The Uruguayan Central bank in its second-quarter Monetary Policy report forecasted a 3.5% expansion for the country’s economy, the same as the Finance ministry’s estimate but anticipated higher inflation because of an increase in fuel costs and international prices of commodities.

However, the Central Bank Expectations Survey, which consults local economists and experts, kept its projected average growth rate for the economy in 2021 almost one full point below government forecasts, at 2.6%.

Economic activity picked up again during the second quarter, with preliminary data from May showing imports of capital goods and intermediate goods continued to show a significant dynamism.

Based on indicators, consumption had a good performance while an increase in the confidence index of consumers was also noted. When it comes to exports “volume and prices remain elevated, but marginal growth is slowing,” the bank’s report added.

Analyzing the different business sectors, performance has been dissimilar. During recent months, output increased in agriculture, fisheries and mining, in construction. Other sectors that have boosted activity are related to goods.

URUGUAY GROWTH RATE Q1 2021
(Source: Banco Central del Uruguay)

However, downward pressure was reported in professional activities & leasing; health, education, real estate and other activities; commerce, accommodation and supply of food and beverages; and transportation & storage, information & communication. This was particularly felt during the first quarter of the year because of an abysmal tourism season.

Uruguay’s yearly Consumer Price Index (CPI) increased to 7.33% in June from 6.64% in May, according to data released by the National Institute of Statistics (INE), above the government’s range (between 3% and 7%).

The central bank’s inflation range is between 3% and 6%. The Central Bank report marks a one full percentage point increase (from a 7% axis) for 2021 while anticipates that next year, during the second quarter, inflation will return to target.

The government of President Luis Lacalle Pou established an ambitious goal for inflation to be below 6 % in 2022 and reach 3.7% by the end of 2024, according to the projections contained in the National Budget (2020-2025).

Uruguay’s unemployment rate grew from 9.7% in April to 10.2% at the end of May, which marked a return of the index to double-digit figures, according to a report released by the INE.

In its third 2021 meeting, at the end of June, the central bank’s Monetary Policy Committee (Copom), kept its interest rate unchanged at 4.5% and anticipated it will wait for stronger signals of economic recovery before altering the current monetary policy.

However, the Uruguayan economy can be expected to end 2021 with an average growth of 3.5%, the bank’s report said.

The basic scenario, following a 5.9% contraction in 2020, the expected evolution of the activity level anticipates a recovery to pre-pandemic levels in the third quarter of this year.

Private investment is expected to be a great booster, contributing to growth including government spending, and exports. In 2022 exports will continue to have an impulse together with private consumption.

Uruguay, is a small, relatively wealthy Latin American nation.