MercoPress. South Atlantic News Agency

Paraguay expects 9.5% expansion next year propped by a ‘super soybean crop’

Bets are in soybeans and recovering the Chilean market for Paraguayan beef

Paraguay’s economy is forecasted to contract 1.5% in 2012 but in 2013 will soar 9.5% based on a “super soybean crop” and the recovery of other sectors, according to the latest report from the country’s Central bank confirming its previous 2012 GDP estimate.

The impact of drought has meant “drastic reductions in the production of soybeans, corn and other crops” and the loss of beef export markets because of outbreaks of foot and mouth disease, first reported in September 2011, have resulted in an overall 20.6% contraction of the primary sector.

Likewise in manufacturing prospects are “modestly dynamic” given the restrictions imposed by Argentina on imports, and construction has also suffered because of low outlays in infrastructure investments, both from the public and private sectors.

However the impact of the two huge hydroelectric dams shared with Brazil and Argentina (Itaipú and Yaciretá), will nevertheless help the overall manufacturing and secondary sector to advance 5.2%, according to the latest review. Finally the services sector is expected to expand 5.6% and the taxing percentage will be down 0.5 because of its close relation with the fall in economic activity.

But for next year prospects are radically different “with a great impetus” according to the first estimates which have GDP growing by 9.5%. Besides the ‘super crop’ of soybeans, the central bank is counting on the recovery of the Chilean market for Paraguayan beef, lost in 2012 because of the 2011 FMD, and which represented almost 30% of total exports.

“Reactivation can also be expected in the construction industry linked to government plans to finance infrastructure works with the issuing of 550 million dollars in sovereign bonds” said the central bank adding that there should be a strong rebound from domestic demand given a firmer supply and ‘dynamic credit’ facilities for local demand and investment.

The central bank also anticipates that the Financial Agency for Development will be recapitalized in support of a sustainable level of investment growth. The Paraguayan bank also mentioned the ‘responsible macro-economic’ policies adopted recently in reference to the removal last June 22 of Fernando Lugo as president and his replacement by Federico Franco, following an impeachment at the Senate.

The Paraguayan economy expanded an average of 4.5% from 2004 to 2008, underwent a 4% retraction in 2009 and was again booming in 2009 with 4% expansion; 13.1% in 2010 and 4.3% in 2011.