Uruguay’s GDP expanded 3.9% last in 2012 over the previous year despite a slight contraction in the fourth quarter, according to a late Wednesday release from the Central bank. The bank’s original estimate was 4%. In 2011 the economy grew a revised 6.5%.
In the fourth quarter the economy expanded 4.8% over a year earlier but contracted 0.1% from the third quarter. However in 2012, activity in almost all sectors was sustained except for government services (power, gas and water) and in farming.
The first is attributed to lower prices, given the Uruguayan government’s efforts to contain inflation by freezing utility rates and for faming which included agriculture, livestock and forestry, volume and prices increases were below the economy’s average.
However construction continues to boom expanding 8.9% in 2012 as well as transport and communications, 6.7% and other activities, 36.9%.
“The annual GDP by expenditure components followed a strong expansion of domestic demand both from final consumption as well as capital formation”, said the Central bank release.
Families’ final consumption increased 6.5% and became one of the main growth factors for the Uruguayan economy in 2012. Private investment also helped significantly for the expansion of capital formation growth, said the bank.
But the trade balance worsened in 2012 compared to 2011 since exports expanded 1.6% and imports, 13.6%. This was the tenth straight year of growth for the Uruguayan economy boosted by the strong international demand for commodities and soaring prices, plus rock bottom global interest rates which attracted massive inflows of capital.
In this scenario inflation remains a major challenge: although it slowed slightly in 2012 to 7.48%, it was again well above the central bank’s target of 4% to 6%.
Faced with the ongoing situation and a budget deficit that tripled in twelve months from 0.9% to 2.8% of GDP, the Central bank raised the benchmark interest rate 25 points to 9.25% last December but had them on hold in March. Nevertheless bank reserves in Uruguayan Pesos and US dollars were increased considerably.
The government has forecasted 4% growth in 2013 but private analysts are not as optimistic as the economy seems to be slowing down and key trade partners also have their own problems.