MercoPress. South Atlantic News Agency

Uruguay expects slower growth, higher budget deficit

Minister Garcia remains upbeat about the Uruguayan economy in second half of the year

Uruguay’s Economy minister Alvaro García downgraded the country’s growth prospects for this year while doubling the budget deficit estimate from 1% to 2% of GDP. He made the announcements following Monday’s cabinet meeting when he admitted the Uruguayan economy will expand 2% in 2009, --down from 3%-- with a first negative quarter.

“The first quarter has a negative sign, but we believe the second quarter will stabilize and we can expect a gradual recovery in the second half of the year”, said García. However he said he would prefer to have the full and final numbers for 2008.

But opposition economists were more caustic about Uruguay’s economic prospects and the government’s expectations.

Javier de Haedo from the leading opposition party said that the private sector and private consultants have been predicting from the beginning of the fourth quarter of 2008 that Uruguay would not be immune to the global crisis and 2009 expansion will be 1% or even slightly negative.

“The impact of the exports industries, in spite of a good showing of domestic demand will eventually reach the rest of the economy. So the government is playing a sliding game and will see the budget deficit balloon higher than anticipated”, said de Haedo.

“For the last five months the government we have seen the government tell us that the budget deficit is increasing: first it was 0.5% of GDP, then 1.1%, later 1.5%, now 2%, which in money terms means the deficit has gone from 120 to 600 million US dollars. Let’s hope this is the last tablet of this medicine, although I doubt it very much”, said Isacc Alfie, Senator and economist belonging to the junior partner of the opposition.

Regarding the growth estimate “I believe it’s too optimistic, although it’s understandable since we are in an electoral year”, added Alfie who recalled that exports have been falling since last October, both out of the region and regionally.

Garcia admitted that imports and exports during the first quarter of 2009 contracted relative to the previous quarter, and so did the manufacturing sector, but tax revenue increased slightly, “which means we had a good tourism season and domestic demand remains strong and thriving”.

The minister was also optimistic about investments in general, which remain “dynamic” he said, and help the government in keeping with investment targets and means “that when the international context changes recovery will be faster”.

Deputy Finance minister Andres Masoller also pointed out the solid situation of the Uruguayan economy: “domestic demand remains strong, private consumption and investments keep expanding”. He also pointed out to a recent public opinion poll which indicates a strong consumers “confidence-index”.

The Uruguayan economy has been growing sustainedly since 2003, following the 2001/02 crisis which spilt over from neighbouring Argentina’s default and melting of its economy.