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Thursday, September 17, 2015

Disappointing economic data startles Uruguay

Uruguay’s President Tabaré Vázquez (right) on a 2009 visit to China, whose economic problems may greatly complicate his country’s growth.
Union unrest adds to turmoil as unemployment, inflation and consumer confidence figures all worsen

MONTEVIDEO — The Uruguayan economy is weakening faster than expected, with a second-quarter drop in Gross Domestic Product (GDP) heralding a possible recession. Rising unemployment and low consumer confidence across the region also serves to further provide a pessimistic outlook.

GDP figures for the second quarter released Tuesday surprised analysts, with many experts continuing to post encouraging growth projections for this year — a year that many economies that influence Uruguay’s, such as Brazil and China’s, are contracting.

In the second quarter, GDP fell 0.1 percent compared to the same period last year. It also contracted over the first quarter of 2015, by 1.8 percent.

When comparing the figures to the second quarter of 2014 — the most accurate comparison in minimizing distortion from seasonal factors on the GDP — the drop “isn’t so bad,” according to Pablo Moya, from Oikos consulting.

Moya admitted however that he did not expect a GDP contraction during this period; expecting at least a “very slight growth.”

“This decline was expected for the” third quarter, said Ignacio Munyo, director of the Economy, Society and Business Centre at the University of Montevideo.

Uruguay’s Central Bank attributed much of the effects on the drop to the drought that hit the country in the first half of the year knocking 1.6 points off the GDP.

The bleak figures have analysts beginning to doubt the forecasts made by the government under President Tabaré Vázquez — who took office earlier this year — that are established in the draft budget law under discussion in

Parliament.

One of the most important economic variables for the government, annual inflation, is nearing the psychological benchmark of 10 percent, following an increase in consumer prices by 1.18 percent in August compared to July which brought the 12-month rate to 9.48 percent.

June unemployment was 7.4 percent, the same as in May, but half a point higher than June last year.

Several major industries such as the dairy, automobile or fishing sectors have closed their doors for the year, due to falling international prices, debts or the closing of export markets and exports have recorded nine consecutive months of decline.

Since taking office, Vázquez has showed signs of wanting to implement austerity controls, bringing him into conflict with workers who expect him to fulfill the promises he made during the campaign that brought him to power for the second time in the 2014 elections.

Another UNION strike

Further complicating the government’s situation, the main trade union PIT-CNT will paralyze the country today for four hours, demanding wage increases and a higher proportion of the budget.

Public health services will also join today’s partial strike and continue until tomorrow morning.

The repeated strike actions from the unions and voices of dissent from within his own party have stopped Vázquez from implementing austerity measures as Congress debates a newly-shortened two-year budget plan that is fiercly dividing opinion among lawmakers.

The current budget discussions reflect the concern over the internal and external situation, the budget bill is currently being discussed for a period of two years, when usually it is five.

“The budget predicts much higher (fiscal) revenue than what there really is,” estimated Munyo, who said “the thing is much worse” than expected.

If you look at “different indicators of activity,” such as retail or car sales, “all are stagnant and some are falling,” he said.

Additionally, consumer confidence shows five months of decline, unemployment is rising and real wages have been falling almost since the year began, he added.

Munyo said that in light of the information available on Tuesday, Uruguay should grow a maximum of 0.6 to 1.3 percent in 2015.

“It is quite likely that within three months, when the September data is released, Uruguay will be entering a recession,” with two consecutive quarters of downward activity, he predicted.

Herald with AP, agencies

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