Uruguay Country Risk Report Q1 2020

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.


Executive Summary
Core Views
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Uruguayan Growth Weighed Down By Argentina
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS EXPORTS (2018)
TABLE: TOP FIVE GOODS IMPORTS (2018)
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy Framework
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
Uruguayan Peso Will Depreciate Further As Regional Headwinds Persist
TABLE: CURRENCY FORECASTS
10-Year Forecast
The Uruguayan Economy To 2028
Exposure To Trade Presents Headwinds To Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Uruguay Country Risk Q1 2020ContentsPolitical Outlook
Domestic Politics
Uruguay's Frente Amplio Likely At End Of Reign
TABLE: POLITICAL OVERVIEW
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Manufacturing Weakness And Rising Political Risk To Weigh On Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: URUGUAY – MACROECONOMIC DATA AND FORECASTS

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