Uruguay Country Risk Report Q4 2017

Executive Summary

Core Views

Chapter 1: Economic Outlook

SWOT Analysis

BMI Economic Risk Index

Economic Growth Outlook

Exports & Consumption Driving Growth

Uruguay will maintain robust growth over the coming quarters, supported by agricultural exports, consumption and an uptick in

investment. That said, the pace of growth is likely to slow in H217 relative to preceding quarters as the effects of a strong harvest fade.

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 & FINANCIAL ACCOUNT BALANCE

TABLE: CURRENT ACCOUNT BALANCE FORECASTS

TABLE: TOP 5 GOODS EXPORTS

TABLE: TOP 5 GOODS IMPORTS

Monetary Policy

Modest Inflation Supports Looser Monetary Policy

The Banco Central del Uruguay will maintain an accommodative monetary policy stance over the coming quarters in light of contained

inflation. The bank will continue to intervene to mitigate currency volatility, a key driver of price growth.

Monetary Policy Framework

Fiscal Policy And Public Debt Outlook

Narrower Deficits Despite Budget Opposition

Uruguay's fiscal deficit will narrow over the coming quarters, driven by an increase in revenues. While expenditure reductions will remain

limited by political opposition, the country's stabilising sovereign credentials will support the business environment.

Structural Fiscal Position

TABLE: FISCAL AND PUBLIC DEBT FORECASTS

Currency Forecast

UYU: Modest Depreciation Amid Downside Pressures

The Uruguayan peso will remain in a modest depreciatory trend. Weakening terms of trade, an unfavourable inflation differential with the

US and a relatively expensive valuation will place the unit under pressure.

TABLE: BMI CURRENCY FORECASTS

Chapter 2: 10-Year Forecast

The Uruguayan Economy To 2026

Exposure To Trade Presents Headwinds To Growth

Over a multiyear time horizon, Uruguay will face significant headwinds to headline growth as investment into its large agricultural and

re-export industries declines. Consumption will become an increasingly key driver of growth as Uruguay’s large middle class continues

to see disposable incomes rise.

TABLE: LONG-TERM MACROECONOMIC FORECASTS

Contents

Chapter 3: Political Outlook

SWOT Analysis

BMI Political Risk Index

Domestic Politics

Intraparty Divisions Undermine Vázquez

Uruguayan President Tabaré Vázquez will most likely be able to move forward with a budget that will aim to narrow the fiscal deficit.

However, weak public support, union opposition and intraparty divisions will likely result in weaker reforms, while gridlock remains a

downside risk.

TABLE: POLITICAL OVERVIEW

Chapter 4: Operational Risk

Operational Risk

TABLE: OPERATIONAL RISK

Labour Costs

TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE

Legal Environment

TABLE: BUREAUCRATIC PROCEDURES

Chapter 5: BMI Global Macro Outlook

As Good As It Gets?

TABLE: GLOBAL MACROECONOMIC FORECASTS

TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y

TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y

TABLE: URUGUAY – MACROECONOMIC DATA & FORECASTS

Uruguay Country Risk Report Q4 2017

Core Views

Uruguay will maintain robust growth over the coming quarters,supported by agricultural exports, consumption and an uptick ininvestment. That said, the pace of growth is likely to slow in H217relative to preceding quarters as the effects of a strong harvest fade.

The fiscal deficit will narrow over the coming quarters, driven byan increase in revenues. While expenditure reductions will remainlimited by political opposition, the country’s stabilising sovereigncredentials will support the business environment.

President Tabaré Vázquez will most likely be able to move forwardwith a budget that will aim to narrow the fiscal deficit. However, weakpublic support, union opposition and intraparty divisions will likelyresult in weaker reforms, while gridlock remains a downside risk.