Download March 2017

LATIN AMERICA UPDATE MARCH 2017
BRAZIL
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After approving the Spending Cap bill in the end of 2016, President Temer is now trying to implement new social
security and labor legislations to bring consumer and market confidence back. In the beginning of 2017, Brazil took
a hit as one of the Ministers of the Supreme Court, Teori Zavascki, and rapporteur of the Operation Car Wash, died
in a plane crash. On the economy side, inflation eased and ended 2016 within the target range set by the Central
Bank. The Monetary Policy Committee has given signals that they will lower the interest rates throughout the year
to try to recover the sluggish economic activity.
CHILE
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Chile will have Presidential election in November 2017 and some old faces are trying to get back to the Presidential
seat. Former President Ricardo Lagos is running for President, but his vote intentions are much lower than Alejandro
Guillier, a Senator that will run for President for the first time. Also former President, Sebastián Piñera is leading vote
intention polls. GDP growth in 2016 is expected to end at 1.5%, after the Monthly Indicator of Economic Activity
(Imacec) indicated a growth of 1.2% in December. Unemployment rate grew compared to 2015 and the inflation
rate eased at the end of the year, ending at 2.7%, within the target range set by the Chilean Central Bank.
COLOMBIA
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The Colombian government is still trying to reach an agreement with the opposition to finally close the peace deal
with the FARC. The terms of the peace deal were voted in Congress and the opposition managed to implement
some of their requirements for the peace deal. The Government has been facing some criticism over the new tax
legislation, which came into force in January. Minister of Finance, Mauricio Cárdenas, stated the importance of the
new legislation and that Colombia will then most likely keep its investment grade.
PERU
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President Pedro Pablo Kuczynski’s approval rate took a serious hit after corruption scandals involving one of his
presidential advisors came to light. According to polls, the majority of the population does not feel represented by
the Congress and its lawmakers. The government is trying to deregulate a few sectors to boost economic growth
in 2017. GDP grew by 3.9% in 2016, mainly driven by raises in copper and zinc production and exports. Also, the
country posted a trade balance surplus after several deficits in the past years. The mining sector boosted exports
and is expected to keep growing in 2017.
URUGUAY
President Tabaré Vázquez is facing criticism from the Mercosul bloc after meeting with the Chinese Prime Minister
without consulting the bloc. Mr. Vázquez is trying to find new trade partners and sees in China great potential to
boost its exports and investments in the country. Uruguay has had stable economic activity in the past years and is
expected to post a GDP growth of 1.4% in 2016. GDP has been growing for the past several years and was the main
reason for the country to keep its investment grade.
11
BRAZIL
POLITICS
After many uncertainties during 2016, the Brazilian Congress approved
one of the most import constitutional amendments to start reducing
the Government’s debt. Despite all the corruption probes involving
some of Michel Temer’s closest allies, the coalition remained strong.
The spending cap bill, which limits Government spending to the previous
year’s inflation for 20 years, was approved in both the Senate and the
Lower House. The amendment was enacted in December and the rule
will apply for 2017. According to the Minister of Finance, Henrique
Meirelles, the approval of the amendment gives a positive sign to investors and helps recover business and consumer’s confidence.
One of the most expected changes for 2017 is the social security
reform. The amendment is being analyzed by a special commission and
is expected to go to Congress to be voted in March. Some of the new
rules proposed are a minimum age of 65 (for both men and women) for
retirement, at least 25 years of contribution and the non-accumulation
of pension and retirement. Women over 45 and men over 50 years-old
will have a transition rule. Those rules were extremely criticized by the
opposition and even within the coalition there are some politicians
not comfortable with them, and the Federal Government said they are
open to discussion. Mr. Meirelles, Mr. Temer and Ilan Goldfajn, Central
Bank’s President, stated in a press conference that such reforms are
essential to the country’s economic recovery.
ECONOMY
Brazil
2014
2015
2016P
2017P
GDP (USD bn)
2,416
1,769
1,797
2,010
GDP per capita (USD)
11,914
8,650
8,719
9,677
Real GDP Growth (%)
0,2
-3,8
-3,5
1,0
Inflation rate (annual var. %)
Exchange rate (BRL per USD)
Interest rate (% p.a.)
6,4
10,7
6,30
4,4
2,66
3,90
3,26
3,35
11,25
14,25
13,75
9,25
Trade balance (USD bn)
-4,0
19,7
47,77
46,0
Current account balance (% of GDP)
-4,1
-3,3
-1,3
-1,6
Foreign direct investments (% of GDP)
4,0
4,2
4,4
3,8
57,2
66,2
69,9
74,7
Gross public debt (% of GDP)
Source: Bacen, Bloomberg, IMF
Following the recession and uncertainties around the country, the
Brazilian Institute of Geography and Statistics (IBGE) showed that the
unemployment rate reached 12% in 2016, equivalent to 12.3 million
people. This is the highest rate in Brazilian history. The number of
unemployed people jumped from 9 million in 2015 to 12.3 million in
2016, a 36% growth. Also according to IBGE, wages discounted for
inflation in 2016 decreased 2.3% compared to 2015. Expectations are
that the unemployment rate will continue to grow throughout 2017.
In the beginning of February, the Lower House and the Senate held
their elections for Speakers in the Senate, Eunício Oliveira from the
Brazilian Democratic Movement Party (PMDB), same political party as
Michel Temer and one of his closest allies, was elected and delivered a
speech about the urge to approve the new Social Security legislation.
In the Lower House, another political ally of Michel Temer was chosen.
Rodrigo Maia was re-elected and also said he would help the Federal
Government to pass the necessary measures to support reforms and
the economy. The elections represented a victory for the coalition and
to President Temer.
After the tragic death in an airplane accident in January of Minister
Teori Zavascki, the Supreme Court selected in a random electronic
poll, Edson Facchin to take his seat. Mr. Facchin will now inherit all
the cases handled by Mr. Zavascki and will be responsible ruling on
the plea bargains of several former executives from construction
companies, which include the names of dozens of politicians, allegedly
involved in corruption. The new rapporteur was appointed Minister to
the Supreme Court by impeached President Dilma Rousseff. President
Michel Temer announced Alexandre Moraes, former Minister of Justice,
as the new Supreme Court Minister.
Also according to IBGE, the IPCA (Consumers Price Index) rate ended
2016 at 6.29%, within the target range of 2.5%-6.5% set by the Central
Bank. This was the lowest rate since 2013 when the inflation was at
5.91%. At the beginning of 2016, market was expecting the rate to
end the year at 7.2% (higher than the target range), but the recession
and high unemployment were the main drivers to lower the inflation,
which ended at 6.29%, lower than the 10.67% by year-end 2015. The
food and beverage prices rose, in average, 8.62%, and it was the sector
that impacted most the inflation rate. According to the Focus Report
(report including 120 plus financial institutions) market expectations
are that inflation will end 2017 at 4.64%.
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The Monetary Policy Committee (COPOM) announced in January a cut
of 75 basis points of the SELIC rate, from 13.75% to 13%. According to
the minutes, the lower than expected inflation in 2016 was the main
driver, alongside the low economic activity, to a higher than expected
cut and opened room for larger cuts in the future. Also according to
the Committee, the economic activity is beyond the Central Bank’s
(BC) expectations and economic evidence shows that the recovery
might take longer than the expected. Market experts are expecting the
SELIC rate to end the year at 9.50%. The Committee also stated that
the approval of the spending cap bill and other fiscal reforms brings
balance and helps the Central Bank to anchor expectations.
The current account deficit (which ended at 1.3% of the GDP) stabilized
after reaching 4.5% of the GDP in 2015. Fernando Rocha, Assistant Chief
of the Economic Department of the Central Bank, said the external
accounts highly depend on the commodities prices and during the last
few years, the prices decreased, impacting Brazilian external accounts.
Brazilian trade balance posted a record surplus in 2016, helping the
current account deficit to shrink. The surplus reached USD 47.7 billion and
was mainly impacted by the weak BRL and lower imports. The Brazilian
external debt decreased from USD 334.7 billion in 2015 to USD 323.7
billion in 2016 while the international reserves remained stable at the
USD 370 billion range.
4
CHILE
POLITICS
Chile faces Presidential elections in November 2017. Former President
of Chile, Ricardo Lagos will run for President representing the Partido
Por La Democracia (PPD), a centrist-left party which is aligned with
Ms. Bachelet’s Partido Socialista (PS). The candidate got 92% of the
party’s internal votes. His campaign promises to include the continuity of
the educational reform, higher pension benefits and a deeper integration
of Latin America. Nevertheless, the former President faces a 45% rejection
from the population according to recent polls.
According to the Monthly Indicator of Economic Activity (Imacec),
released and surveyed by the Chilean Central Bank, the GDP growth in
December 2016 was 1.2%. The Minister of Finance, Rodrigo Valdés, said
that the results released by the Imacec shows an important recovery of
the country’s economy in the past few months. Also according to the
report, it is expected for Chile to post a 1.5% GDP growth by YE2016.
Mr. Valdés said that the GDP growth was negatively impacted by the
mining sector, which was responsible for the high unemployment rate,
but it was still better than the other South American countries.
Senator Alejandro Guillier also plans on running for President. Mr.
Guillier posted higher intention vote ratios than Ricardo Lagos.The
Senator still has to win the primaries within the social democrat party
Partido Radical, but many consider this a given. If Mr. Guillier wins the
primaries, he will then face Ricardo Lagos in a vote that will include
parties of Michelle Bachelet’s coalition.
Conversely, the other coalition’s candidate with the highest support
is former President Sebastián Piñera. Mr. Piñera, a centrist-right,
has not made official his candidacy, but he has been leading the
voting intention polls over the past months. Mr. Piñera is opposed to
Ms.Bachelet’s main reforms and aims at boosting the economy through
a pro-market agenda.
According to CADEM’s poll released in February, President Bachelet’s
approval remained low at 19%, while 72% of the people interviewed
disapprove her Government. The poll also highlights that 80% of
the people interviewed reject Bachelet’s cabinet and the way they
were conducting their job. Amid low approval ratings and scandals,
Ms. Bachelet has been trying to improve Chile’s trade deals and diplomatic
ties by meeting a number of world leaders. Ms. Bachelet met President
of Argentina, Mauricio Macri, and they both announced closer ties
between the Mercosur and the Alianza del Pacífico (Pacific Alliance) in
order to counterweight the possible controversial economic impacts
Donald Trump’s agenda may have in the region. Chile has free trade
agreements with over 180 countries and is concerned about the
protectionist wave that has been hitting some of the strongest
economies around the world.
Chile’s unemployment rate by year-end 2016 was 6.5%, up from 6.3% in
2015, according to the National Institute of Statistics (INE). Based on INE’s
assessment, unemployment rate increase during 2016 can be explained by
lower economic activity and lower job creation. The sectors that suffered
the most are the construction and mining sectors, which are also the ones
that concentrate most of the jobs. The decrease was partially offset by
higher employment rates in the agriculture and retail sectors.
ECONOMY
Chile
GDP (USD bn)
GDP per capita (USD)
2014
2015
2016P
2017P
258
241
245
255
14,491
13,291
13,471
13,843
Real GDP Growth (%)
1,9
2,0
1,5
2,0
Inflation rate (annual var. %)
4,6
4,4
2,7
2,8
Exchange rate (CLP per USD)
606
709
670
685
Interest rate (% p.a.)
3,0
3,5
3,5
2,5
Trade balance (USD bn)
7,8
4,1
4,6
3,2
Current account balance (% of GDP)
-1,2
-1,7
-1,7
-1,8
Foreign direct investments (% of GDP)
8,6
8,5
5,0
4,8
13,9
16,3
17,9
Gross public debt (% of GDP)
Source: IMF, Bloomberg, BCCh, INE, Harver, Itaú
Inflation at year end 2016 was 2.7%, within the target range set by the
Central Bank of 2%-4%. Inflation was partially impacted by lower economic
activity and higher unemployment. This was the first year since 2013 that
the inflation rate ended within the target. Chile posted the lowest inflation
rate in South America and is expected to post a similar figure in 2017.
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After inflation results came within target and the Monetary Policy Committee
(IPOM) cut by 25 basis points the benchmark interest rate to 3.25% in January
2017, market experts are looking forward to the Central Bank’s next move.
According to the IPOM minutes in January, they cut interest rates based on
lower economic activity and lower inflationary pressure. The market expects
interest rates to remain steady or with a slight decrease.
Fitch reassured Chile’s Long Term rating at A+, but revised the country’s
outlook to negative. Chile’s lower economic activity in the past three
years and the consecutive fiscal deficits has made the rating agency
revise the country’s outlook. Nevertheless, a controlled Government debt
and the Central Bank’s policy framework reassures Chile’s high-quality
investment grade.
6
COLOMBIA
POLITICS
President Juan Manuel Santos has been trying to appease the opposition
by changing the rules set on the peace agreement to FARC members.
Mr. Santos sent to Congress in December a new law giving amnesty for
“small crimes”. Both the Senate and the Lower House approved the law
by unanimity and this was seen as a great victory towards the peace
agreement. The Government and the opposition managed to come to
an agreement and crimes such as war crimes and violations of human
rights will not be pardoned.
commerce, restaurants and business activities. In the past few years,
the number of self-employed people has grown due to uncertainties over important sectors such as the oil and gas and construction.
Although the number of unemployed people increased from 2015, the
number of employed people reached a record high in 2016. According
to DANE, this happened because there were more people entering the
job market looking for jobs.
Some of the amendments that are also in the agreement include rural
reform, compensation to victims and a ceasefire monitored by the
United Nations. The amendment most criticized by the opposition is
the conversion of the FARC into a political party. After the voting was
concluded, President Santos stated that it represented a victory for the
country and a further step towards the peace agreement.
Amid the controversial peace talks, the Government is also facing some
criticism due to the new tax legislation, which came into force in the
beginning of the year. The change that drew the fiercest criticism was
the increase of the sales tax from 16% to 19%. During the discussions
in both houses, congressmen proposed a gradual change, but ended
up being defeated.
Although the new tax legislation was criticized by some, the market is
seeing the change with good eyes. The new legislation was assessed
by Moody’s, Standard & Poor’s and Fitch alongside Minister of Finance,
Mauricio Cárdenas. According to Mr. Cárdenas, the feedback they
got from the rating agencies was very positive and it represents an
important step to maintaining the investment grade. President Santos
also came to public to state that the new legislation is vital to keep the
country’s public finances in order after the crude oil prices decreased
in 2014 and 2015.
ECONOMY
Colombia
GDP (USD bn)
2014
2015
2016P
2017P
378
293
280
300
GDP per capita (USD)
7,940
6,069
5,735
6,075
Real GDP Growth (%)
4,4
3,1
1,8
2,3
Inflation rate (annual var. %)
3,7
6,8
5,8
4,3
Exchange rate (COP per USD)
2,377
3,175
3,002
3,008
Interest rate (% p.a.)
4,50
5,75
7,50
5,50
Trade balance (USD bn)
-6,3
-15,9
-12,0
-8,0
Current account balance (% of GDP)
-5,2
-6,5
-4,4
-3,6
Foreign direct investments (% of GDP)
4,3
4,1
3,8
3,4
40,6
45,1
46,0
46,3
Gross public debt (% of GDP)
After ending 2015 with an inflation of 6.77%, Colombia’s inflation
rate decreased and finished 2016 at 5.75%. The rate is still above the
target range of 3% with a ±1% band. In December, inflation rose 0.42%,
higher than the expected by the market, but less than a year before.
Food prices were the main drivers for a higher inflation because of the
El Niño phenomenon, which shortened food supplies and destroyed
plantations. Nonetheless, now that the weather phenomenon is
fading, the food price is expected to decrease and help bring inflation
down, since the food sector has been the main driver for high inflation
during the past couple of years. Healthcare and medical products also
posted the highest increase in 2016, rising 8.14%., adding up to the food
as a driver for high inflation in the recent years.
Source: IMF, Bloomberg, Dane, Banrep, Haver and Itaú
The unemployment rate reached 9.2% in 2016, 0.3% higher than the
rate in 2015. According to the National Statistics Department (DANE),
unemployment rose mainly due to low transportation activity during
July and low construction activity during the year. The construction
sector was negatively impacted by the low economic activity and
fewer infrastructure projects in the country in 2016. Nevertheless, the
sector is expected to help boost the Colombian economy with infrastructure
projects set to start in 2017, which will help the creation of jobs in the country.
The sectors that hired the most were the manufacturing sector,
7
In an unexpected move, the Colombian Central Bank decided to leave the
interest rates unchanged in the first Monetary Policy Meeting (COPOM)
in 2017. Market was expecting the rate to be cut by 0.25% to 7.25%, but
COPOM decided vote to leave the interest rates unchanged. According
to the COPOM’s minutes, the Central Bank states that there is a need
for monetary easement due to low economic activity, but the Central
Bank is concerned about inflationary expectations, which shows the rate
above the 2%-4% target range set. According to market, the interest rate
is expected to end 2017 at 5.5%, but there are a lot of uncertainties over
when and by how much they will cut the rate.
Trade balance deficit in November decreased compared to 2015 from
USD 15.9 billion to USD 12.7 billion. With the sluggish economic activity
which impacted imports, a devaluated Colombian Peso and higher oil
prices helped the trade deficit to decrease. Coal and oil exports are the
main reason for the better exports figures in 2016, which inched up
12.6% on a yearly basis. As the trade balance shows signs of recovery, the
current account deficit has been narrowing and is expected to end 2016
at 4.4% after reaching 6.5% in 2015.
Trade balance deficit in November decreased compared to 2015 from
USD 15.9 billion to USD 12.7 billion. With the sluggish economic activity
which impacted imports, a devaluated Colombian Peso and higher oil
prices helped the trade deficit to decrease. Coal and oil exports are the
main reason for the better exports figures in 2016, which inched up
12.6% on a yearly basis. As the trade balance shows signs of recovery, the
current account deficit has been narrowing and is expected to end 2016
at 4.4% after reaching 6.5% in 2015.
8
PERU
POLITICS
President Pedro Pablo Kuczynski’s approval rate has decreased 20%
since he was elected in July 2016, according to IPSOS. Political analysts
convey that the corruption scandal that hit Mr. Kuczynski’s former
health adviser and the scandal related to Operation Car Wash in Brazil,
involving Peruvian politicians and public employees, have contributed
to the dissatisfaction of the political sphere as a whole.
a positive impact in GDP were the agriculture and the financial. For
2017, it is expected for Peru to keep growing at same or higher pace,
depending on commodity prices. Peru, as other economies in the
region, is a commodity bared economy exporting country. Thus, a
permanent change in copper, oil and other key commodities would
accelerate Peru’s growing speed.
Mr. Kuczynski announced anti-corruption measures in October last
year. The measures are aimed at increasing scrutiny of people occupying
key positions within the government, the creation of a law that prevents
people to occupy political positions after involvement in a corruption
scandal, the creation of an anti-corruption council involving the three
government powers and the creation of a presidential commission to
deal with corruption.
The aforementioned corruption scandals had a negative effect on the
speed of implementation of Mr. Kuczynski’s new policies intended at
bolstering investments and growth.
In connection to the Operation Car Wash in Brazil, a Peru judge ordered
international arrest of former President Alejandro Toledo (in office from
2001 to 2006) on suspicion of receiving USD 20 million in bribes in return
for awarding public works contracts.
Recently, Ireland’s President, Michael Higgins and Mr. Kuczynski met
in Peru and signed agreements to improve trade and scientific ties
between the two countries. The Peruvian Government stated that
these deals are important to improve the country’s technological and
development programs.
ECONOMY
Peru
GDP (USD bn)
2014
2015
2016P
2017P
203
192
195
205
6,458
6,021
6,185
6,481
Real GDP Growth (%)
2,4
3,3
3,8
3,8
Inflation rate (annual var. %)
3,2
4,4
3,2
2,7
GDP per capita (USD)
Exchange rate (PEN per USD)
2,98
3,41
3,36
3,45
Interest rate (% p.a.)
3,50
3,75
4,25
4,25
Trade balance (USD bn)
-1,5
-3,2
1,7
1,5
Current account balance (% of GDP)
-4,0
-4,8
-3,1
-2,9
Foreign direct investments (% of GDP)
3,9
4,1
3,1
3,1
20,0
23,3
24,9
25,9
Gross public debt (% of GDP)
Peru posted a trade balance surplus of USD 1.7 billion in 2016 and the
market is expecting the result to boost the GDP output for 2016. Peru’s
trade balance had been posting consecutive deficits in past years since
2014, but due to higher mining production and higher exports, this
trend changed in 2016. The result helped Peru to shrink its current
account deficit from 4.8% in 2015 to 3.2% in 2016 and expectations are
that it will continue to decrease. It is expected for Peru trade balance
to post surplus numbers in the next three years.
Source: IMF, Bloomberg, INEI, BCP, Haver and Itaú
According to the National Institute of Statistics (INE), Peru’s GDP
expanded 3.9% in 2016. The GDP performance in December was a bit
worse than the figure in November. The higher than expected production
in the mining sector (such as copper, zinc and ore) outperformed other
South American countries and alongside an increase on mining exports
(copper exports rose 42% in 2016) and the better than expected growth in
the manufacturing sector, were the main drivers for better GDP results. The
mining sector growth helped to offset the negative output from the
construction sector. Other sectors that had
Peru’s inflation rate ended 2016 at 3.23%, above the target set by the
Central Bank of 1% to 3%. It was the third consecutive year inflation rate
ended above the 3% band. The market expects inflation ending the year
at 2.8%, but unexpected food and oil shocks prevented this number to
get earlier estimations. December’s inflation slowed down in comparison
to November, but higher oil prices and a drought affecting food supplies
prevented the rate from falling further.
9
Market is expecting inflation to end 2017 at 2.7%, but depending on how
the climate will impact the agricultural sector and food supplies. The food
sector is responsible for 38% of CIP levels in Peru.
The Monetary Committee Policy decided to leave the benchmark interest
rate unaltered at 4.25%. According to the Committee, the Central Bank
decided to maintain the rate after three changes last year to try to
bring down inflation within target (1%-3%). They also stated that, as the
economic activity slowed down in the last quarter of 2016, they would have
to be careful not to put economic growth in danger. The Central Bank is
expected to maintain the interest rate unchanged throughout the year.
10
URUGUAY
POLITICS
After tensions between Venezuela and the Mercosur bloc, when
Uruguay quit the presidency of the bloc and left the chair for Venezuela,
now Uruguay faces criticism. President Tabaré Vázquez met with the
Chinese Prime Minister, Li Keqiang, and has been negotiating with
the Chinese Government to sign a free trade agreement between the
countries. The Brazilian and Argentinean Governments have criticized
Uruguay’s attempt to seek the bilateral trade agreement with China.
One of the reasons the Uruguayan Government is trying to expand
its trade agreements and move away from the Mercosur bloc is the
recession faced by Brazil and Argentina, once both countries represent
large markets for Uruguayan products.
The Uruguayan Central Bank GDP forecast for 2016 is a growth of 1.4%,
an improvement from the beginning of the year when the market was
expecting difficulties due to the economic and political uncertainties
of Brazil, their main trade partner. According to the government, future
infrastructure projects in 2017 and 2018 will boost the economy in the
upcoming years.
Although the country has been facing criticism for trying to close a
trade deal with China, President Vázquez said they will continue with
their plan. Even the opposition is supporting Mr. Vázquez approach
on the matter. The Mercosur bloc failed to close trade deals with the
European Union, the United States and China and the bloc is posting
worst economic figures than the rest of the Latin America. The Minister
of Finance of Uruguay, Danilo Astori, has expressed his concerns about
Brazil denying accepting a trade deal between the countries, which
could lead China to cancel the negotiations.
As Uruguay faces external tensions, the opposition and the coalition
have scheduled meetings to discuss the approval of several law projects
and investments in education and health. The political party Frente
Amplio (FA) stated that investments in infrastructure are also crucial
and that the 16 million dollars invested in infrastructure shall continue
in 2017. Mr. Vázquez also announced visits in February to Germany,
Finland and Russia in order to seek more investments to sectors that
have been struggling with low employment and profitability, such as
the manufacturing industry.
The unemployment rate rose to 7.7% in November from 7.1% in October.
Albeit the construction sector is expected to grow and employ many
people in 2017 and 2018, it was the sector that drove the increase in
unemployment in November as posted negative economic growth.
Also, there were less people finding other jobs which impacted negatively
the number of employed people in the country. The unemployment rate
is expected to end 2016 at 7.8% and reach 8% in 2018.
ECONOMY
Uruguay
GDP (USD bn)
GDP per capita (USD)
2014
2015
2016P
2017P
57,5
53,8
54,2
56,7
16,882
15,748
15,746
16,435
Real GDP Growth (%)
3,5
1,5
1,4
1,2
Inflation rate (annual var. %)
8,9
8,7
8,1
8,9
Exchange rate (UYU per USD)
24,4
29,9
29,2
33,0
13,98
12,27
10,00
12,00
Trade balance (USD bn)
-1,6
-1,2
-0,4
-0,8
Current account balance (% in GDP)
-4,5
-2,3
-0,5
-1,2
Foreign direct investments (% in GDP)
3,8
2,4
2,2
2,0
42,7
47,8
50,3
50,1
Interest rate (% p.a.)
Gross public debt (% in GDP)
Source: IMF, Bloomberg, BCU, Itaú
Uruguay has been outperforming most of its neighbor countries in
South America. During the third quarter of 2016, the GDP inched up 1.1%
quarter over quarter and confirmed the country’s economic stability the
past several years, even with trade partners such as Argentina and Brazil
facing severe recessions. Nevertheless, the improvement of the economy
outlook in Brazil and Argentina helped Uruguay, boosting consumer and
investor’s confidence, stimulating consumption and investments in the
third quarter of 2016.
Inflation fell by 0.55% in December and ended the year at 8.1%, below
market expectations but above the target range set by the Central Bank
(BCU) between 3% and 7%. This was the lowest result since 2012 when
the inflation rate was 7.5%. During the year, the food and beverage and
housing products posted figures which helped reduce inflation, down
from 9.4% in 2015 to 8.1% in 2016.
11
During the year, the food and beverage and housing products posted figures
which helped bring the inflation down from 9.4% in 2015 to 8.1% in 2016.
The appreciation of the Uruguayan Peso against the dollar also
helped to stabilize the prices. For 2017, the BCU is expecting an
inf lation of 8.5% . The “Letras de Regulación Monetaria”, which
helps t he BCU to cont rol inf lat ion , by cont rolling t he liquidity in the economy, has been averaging 13% in the last months but
has not been sufficient to bring inflation within the target range.
The credit rating agencies Fitch, S&P and Moody’s have kept the country’s
investment grade: BBB-, Baa2, and BBB respectively. Both S&P and Moody’s
have put a negative outlook on the country’s rating due to high inflation and
a growth on the fiscal deficit but stated that the fiscal reform expected for
2017 and the GDP growth in 2017 can help upgrade the outlook during the
next two years.
12
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