MercoPress. South Atlantic News Agency

After 18 quarters of growth Uruguay technically in recession

Central Bank president Mario Bergara expects the Uruguayan economy to begin recovering towards the end of the year.

Contrary to government forecasts the Uruguayan economy plunged 2.9% in the first quarter of this year putting an end to 18 uninterrupted quarters of sustained growth. Although government officials downplayed the impact of the retraction, private analysts said this signals the beginning of a recession period in line with what is happening globally.

According to the Central Bank Uruguay’s GDP has been slowing since the third quarter of last year. After a 3.36% expansion in Q2 of 2008, in Q3 the Uruguayan economy expanded 1.68% and 0.48% in the fourth quarter of last year.

Central Bank president Mario Bergara said that the (Uruguayan) situation “is not dramatic and should not be dramatized”, since at world level the idea is that the worst of the crisis is over and a stabilization or slower-fall phase should follow with a possible slight recovery towards the end of the year.

“The Uruguayan economy suffered the impact of the international crisis and GDP contracted more than we expected, but these numbers should not have a significant impact on the overall numbers for 2009”, said Deputy Economy minister Andres Masoller.

He added that “we expect activity to remain stable in the second quarter and a progressive recovery for the second half of the year”.

Bergara pointed out that “this is focalized” since the impact of the global crisis will be moderate, and “Uruguay will be one of the first countries to climb out with the best growth performance in the region”.

Uruguay’s Central Bank growth estimate for this year is in the range of 1.5 to 2%, but private estimates have been forecasting zero or negative expansion in 2009. Nevertheless compared to the first quarter of 2008, the Uruguayan economy expanded 2.3%.

Transport, Storage and Communications was the sector which suffered the largest retraction in the first quarter, 8.5%, followed by manufacturing, 3% while Other activities and agriculture also fell back 1.6% respectively.

Following on the latest data and the fact that the economy has been contracting for several quarters, private analysts argue the recession has reached Uruguay.

Economist Alfonso Capurro said the first quarter data confirms the “economic contraction” and the fact “that recession could have effectively started”. He added that the second quarter can be expected to drop 1.8% compared to a year ago.

“What is most surprising in the first quarter is the fall in imports (7.1% in real terms)” which anticipates a further slowdown of activity, said Capurro.

Economist Pablo Rosselli from Deloitte said that the magnitude of the plunge in the first quarter “makes most probable that the dynamics of the economy leads to another downturn in the second quarter”, which means the country is moving into recession.

Rosselli said that sectors such as manufacturing, farming and retail, hotels and restaurants were already “technically” in recession following the contraction of the last quarter of 2008 and the first quarter of this year and based on this “we estimate zero growth for 2009”.

He also pointed out to the fact that “there’s a significant deceleration of investment and consumption, people are holding back and are more cautious”.

Finally Ramon Pampin from Pricewaterhouse Coopers said that the Q1 contraction is evidence of the “severity of the crisis” and this could mean “a negative growth year”

“We were all assuming a moderation in growth, but now there’s an uncertainty ingredient. We hoped impacts concentrated in the first quarter but given what happened it is most uncertain how strongly the economy will react in the third and fourth quarters”.

Originally the forecast was for the Uruguayan economy to expand 0.5% in 2009 based on a first quarter retraction of 1.5%. But with a greater fall “we will have to review downwards those prospects”, particularly because of the impact of the contraction in manufacturing and its ripple impacts plus the drought suffered by farming indicated Pampin.

The Uruguayan Central Bank estimates that the 2.9% contraction of the first quarter includes half a percentage point caused by climate adversity.