MercoPress. South Atlantic News Agency

Uruguay economy expands 1.9% in the first quarter but uncertainties persist

A new pulp mill under construction helped the sector expand 12.9% in the first three months

Uruguay’s economic growth quickened in the first quarter, spurred by increased transport and communications. GDP expanded 4.2% from a year earlier and grew 1.9% from the fourth quarter of 2011, the central bank said on its website.

In the final quarter of last year, the Uruguayan economy grew 3.5% year-on-year and contracted 1.6% from the previous period.

Growth was led by transport and communications, which expanded 9.4%, while retailers boosted activity 5%, the bank said. Construction expanded 12.9%, mainly because of the building of a 2 billion dollar pulp mill in the west of the country, the bank said. A shutdown at the state oil refinery until mid-February caused industrial output to shrink 1.2%. Prolonged drought led to a 22% contraction in electricity, gas and water supplies.

In March, the policy makers left the overnight lending rate at 8.75% while signalling concern about increasing inflationary pressures in an uncertain global context. Consumer prices rose 8.06% in May from a year earlier, the fastest rate of increase since December, the national statistics institute, INE reported last June 4.

In 2011 the agriculture-based economy grew 5.7% fuelled by growing domestic demand and increased exports. Analysts expect 4.45% expansion in 2012 according to the median of 10 economist surveyed by the central bank in May.

However trade restrictions by neighbouring Argentina and to a certain extent Brazil, and the impact of the global economic crisis held back growth in the first quarter, said Ramiro Almada, an economist at Oikos research firm in Montevideo.

“We expected an impact from the refinery and other industry sectors affected by Argentina’s trade barriers and the international crisis,” Almada said. “In the next quarter there may be a slight contraction because of the global crisis but we estimate that the economy will grow 4% this year.”

Central bank policy makers will meet July 3 to discuss the benchmark rate and will face a serious dilemma between inflation and an uncertain economic evolution in the current world circumstances particularly since Brazil, the country’s main trade partner, has adopted a policy of promoting exports by letting the Real slide against the US dollar.