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URUGUAY
1. General trends
In 2011, the Uruguayan economy grew by 5.7%, driven primarily by private consumption. Inflation, as
measured by consumer price index variation, rose from 6.9% to 8.6%. Meanwhile, the overall publicsector deficit stood at 0.9% of GDP, while the primary balance posted a surplus of 2% of GDP, in both
cases representing an improvement of close to 0.2% of GDP compared with the year-earlier figures.
Growth is expected to slow to about 4% in 2012, which is in line with the figure forecast by the Central
Bank of Uruguay on the basis of its economic outlook survey.
In Uruguay, domestic demand continued to underpin economic growth, against a backdrop of low
unemployment, increasing wage and pension purchasing power, and internal and external inflationary
pressures. Policies have therefore focused on maintaining activity levels and better controlling inflation
through fiscal and monetary policy, even though this could lead to real exchange rate appreciation.
2. Economic policy
(a)
Fiscal policy
Fiscal policy is the cornerstone of the government’s macroeconomic strategy, which seeks to
consolidate economic growth in a context of nominal stability and better income distribution. In line with
this objective, the consolidated public sector balance showed improvement compared with 2010, posting
a deficit of 0.9% of GDP thanks to a primary surplus equivalent to 2% of GDP counterbalanced by debt
service payments equivalent to 2.9% of GDP. Non-financial public sector revenues represented 28.9 % of
GDP, with the main sources being tax receipts (17.6 % of GDP), social security contributions (6.6%), the
primary balance of public enterprises (1.1%) and trade tariffs (1.2%). With regard to primary expenditure
(27.1% of GDP), pension payments totaled the equivalent of 8.9% of GDP, transfers 6.9%, the wage bill
5%, operating expenses 3.5% and investments 2.7% of GDP.
Improving the fiscal situation is seen by the economic authorities as a prerequisite for maintaining
the capacity to respond to any deterioration in the external situation that might require State intervention
in the form of countercyclical policies, as happened in the 2008-2009 crisis. To that end, liquidity has
been rebuilt by issuing debt instruments on the financial markets and signing agreements with
international financial organizations in order to ensure that stand-by arrangements are available. Thanks
to this strategy, the government has achieved a level of liquidity equivalent to about 7% of GDP.
Gross overall public sector debt stood at US$ 25.948 billion at the close of 2011. Of that figure,
central government debt accounted for 70%, central bank instruments 24%, and public enterprise
liabilities 6%. At over 50% of GDP, this level of debt is higher than the average for emerging economies,
leading the economic authorities to propose that it should be brought down to close to 40% by 2015.
Overall public sector assets rose by more than US$ 2.5 billion to stand at US$ 13.197 billion, putting net
overall public sector debt at US$ 12.750 billion (a little over 25% of GDP).
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(b)
Monetary and exchange-rate policy
In accordance with the focus on controlling inflation in a context of growing demand, the
monetary policy benchmark rate was adjusted from 6.5% in December 2010 to 7.5% in March 2011, then
to 8% in June 2011 and finally to 8.75% at the last monetary policy meeting of the year. According to
information from the central bank, median inflation expectations for a relevant 18-month horizon held
steady at 6.8% in the final months of 2011, above the annual target band of 4%-6%.
In mid-year, the Central Bank of Uruguay decided to strengthen monetary policy and raised the
average reserve requirements on deposits. This pushed the marginal reserve requirement up sharply, with
different rates for pesos and foreign currency.
Non-financial private-sector deposits, measured in equivalent dollars, showed a year-on-year
increase of 17% in 2011. Liquidity was high, with demand and savings deposits accounting for more than
80% of the total stock. National-currency-denominated lending to the private sector expanded by 14%
between December 2010 and December 2011, while lending denominated in foreign currency rose by
more than 22%. Credit arrears remained steady, as did household borrowing, which represented about
20% of income, including home loans.
The real effective exchange rate has been on a downward trajectory since August 2010. The peso
appreciated by 6.8% in real terms between December 2010 and December 2011, as the real exchange rate
fell against the currencies of other countries in the region (8.1%) and the rest of the world (4.1%).
3. The main variables
(a)
Economic activity
GDP grew by 5.7% in 2011; however, the seasonally adjusted quarterly GDP contracted in the
fourth quarter for the first time since the first quarter of 2009, when the shock waves of the global
financial crisis hit Latin America. Power supply difficulties caused by the drought and an idle oil refinery
are the main reasons for the downturn in economic activity.
Positive performance in 2011 was seen especially in service output, notably financial
intermediation (annual growth of 17.8%), followed by transport, storage and communications (up 12.6%)
and commerce, restaurants and hotels (9.9% year-on-year increase). Meanwhile, the primary sector grew
at a slower pace (4.5%), as did the manufacturing industry (1.2%). Construction grew by 6.5%; the power
generation, gas and water sector contracted sharply (25.6%).
On the spending front, consumption expenditure went up by 7.6% in 2011, reflecting an 8.2%
increase in private consumption and a 3% rise in government consumption expenditure. Gross capital
formation expanded by 7.0%, while gross fixed capital formation increased at a slower rate of 5.5%.
Goods and services exports were up 5.8%, compared with an 11.2% increase in imports.
(b)
Prices, wages and employment
Inflation stood at 8.6% at year-end 2011. Throughout the year it remained above the upper limit
of the target range set by monetary policy and was fuelled by soaring non-tradable goods prices.
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The labour market continued to expand compared with the same period of the previous year, with
the average national employment rate estimated at 60.1% for 2011, more than 1 percentage point above
the rate for the previous year. The participation rate was estimated at 63.9% for 2011, while the estimated
average unemployment rate was at 6%, a new all-time low. The average wage index, which measures the
price component of wages, rose by 12.5% in nominal terms compared with 2010. Average real wages
increased by 4.0%, which helped boost domestic demand.
(c)
The external sector
Goods exports were up by 18.7% in 2011, with exports valued at around US$ 7.983 billion.
Imports expanded by 25% during the same period, totalling US$ 10.726 billion. The cumulative trade
deficit amounted to US$ 2.743 billion.
In 2011, the balance-of-payments current account deficit doubled compared with the previous
year, reaching US$ 875 million, equivalent to 1.8% of GDP. The wider deficit is attributable to the
deteriorating trade balance —especially the merchandise trade balance, which was not offset by the
improving services balance. The income balance and the transfers balance remained relatively stable.
Despite the deterioration in the current account balance, substantial capital inflows, equivalent to
7% of GDP, made it possible not only to finance the deficit but also to build up international reserves by
more than US$ 2.5 billion.
At US$ 14.418 billion, the level of gross external debt remained practically unchanged by the end
of the year. The non-financial public sector’s demand for resources pushed up external debt by about
US$ 640 million compared with the previous year, which was offset by a similar-sized reduction in
private sector debt. As mentioned above, an additional US$ 2.5 billion in external assets was built up over
the year, leading to a corresponding fall in net external debt.
4. First quarter of 2012: general trends and outlook
The primary balance of the non-financial public sector deteriorated in the first quarter of 2012, owing to a
rise in primary outlays (40.6%) far in excess of revenues (9.2%), leading to a primary deficit estimated at
3.5% of GDP, as compared with a primary surplus of 4.2% in the year-earlier period. The overall balance
moved from a surplus equivalent to 0.6% of GDP to a deficit of 6.4%. It should be clarified that the surge
in first-quarter spending reflected a concentration of payments for certain items, the low basis for
comparison offered by the year-earlier period and payments of wages and remunerations which were
brought forward to March in advance of the Easter week public holiday in April.
No changes were made to the monetary policy rate at the start of the year, even though the
consumer price index remained above the target range at between 7% and 8% year-on-year. In March, the
real exchange rate was down by 2% on end-2011 levels.
In the fourth quarter of 2011 Uruguay’s economic growth slowed to 3.5% year-on-year, with a
drop of 1.9% from the previous quarter in seasonally adjusted terms, as a result of the ANCAP oil refinery
standing idle and the impacts of the drought on electric power generation. This tendency carried over into
the first quarter of 2012, when industrial activity (as shown by the physical volume index) contracted
by 4.5% compared to the first quarter of 2011, but rose by 2.4% if the effects of the stalled refinery
are excluded.
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Unemployment fell again in the first quarter of 2012 to reach the lowest rate on record, 5.7%, as
the economic activity rate declined faster than employment. At the same time, average wages continued to
climb and posted a rise of 14% over the average for first-quarter 2011, representing year-on-year growth
of around 6% in real wages.
Exports showed 12.5% growth in the first quarter of 2012, while imports edged up by just 2.2%,
narrowing the trade deficit. Reserves continued to expand and stood at US$ 11.285 billion in March,
US$ 983 million up on the end-2011 figure.
For 2012 ECLAC projects an economic growth rate of 3.5%. Meanwhile, the median of the
central bank’s economic expectations survey points to a fiscal deficit of 1.15% of GDP and inflation of
around 8% for the year overall.