Uruguay Country Risk Report Q1 2020
We at Fitch Solutions believe Uruguay's centre-right opposition is likely to end the centre-left Frente Amplio (FA)'s nearly 15-year control of the presidency in the upcoming election. Senator Luis Lacalle Pou of the Partido Nacional appears likely to win a second round against the FA's Daniel Martínez, where he will benefit from a broad opposition to the FA, driven by slow economic growth, corruption scandals and insecurity.
No party will hold an absolute majority in the legislature, although a broad consensus around orthodox macroeconomic policy suggests limited risks to policy direction.
We have revised down our real GDP growth forecasts for Uruguay to 0.6% y-o-y in 2019, from 0.8%, and 1.5% in 2020, from 1.8%. Economic activity in Uruguay is likely to remain sluggish over the coming quarters as labour market weakness undermines consumption, partly reflecting spillover from a deepening recession in Argentina.
Construction of a major new pulp mill will likely pull investment out of contraction over the coming months, offering support to activity in 2020. In July, Finland-based paper mill firm UPM confirmed its finalised plans to build a second paper mill in Uruguay. UPM has been in negotiation with the government since 2016 over the mill, which is expected to entail an investment of over USD3.0bn for the mill and associated infrastructure, the largest single investment project in the country's history.
However, persistently weak investment continues to dim the medium-term growth outlook. The recession in neighbouring Argentina will continue to present downside risks to growth.
We at Fitch Solutions expect the Uruguayan government will fall short of its fiscal targets over the coming quarters as the upcoming election will discourage fiscal adjustment. Debt growth will be limited over the near-term by transfers of previously privately held government debt onto the public sector balance sheet.
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