MercoPress. South Atlantic News Agency

Strong contraction of Uruguay's economy: GDP forecasted to grow 0.6% this year

Minister Astori said “the government was making everything possible to recover growth levels, and at the same time, improve fiscal results”.

Uruguay's Economy minister admitted on Friday that the country will end 2019 with a “very modest growth”, in the range of 0.6%, but was confident the economy would pick up in 2020 when the construction of a new pulp mill, with an investment of at least two billion dollars, is scheduled to start.

Minister Danilo Astori's statement are in line with those which he advanced at the end of June to Parliament in his Budget Results report, the last of the current administration which steps down next March. In the report Astori anticipates the Uruguayan economy would end 2019 with a 0.7% growth, well down from the 3.3% GDP expansion he had announced at the beginning of the fiscal year.

During an official ceremony on Friday Astori interviewed by the media said “the government was making everything possible to recover growth levels, and at the same time, improve fiscal results”.

In effect since the international tail winds ceased and are blowing in the opposite direction the Uruguayan GDP expansion rate has consistently fallen, while non flexible commitments in the budget accumulated during the bonanza years have meant that the deficit has climbed to 4% of GDP, and continues to grow, a major challenge for whoever wins the October election and takes office in March.

“We believe that 2019 is going to be a year of modest growth, as the last quarters of 2018 indicated, but in 2020 we expect a much better result among other things stimulated by a significant public infrastructure investment, and hopefully Finland's UPM confirms its intention of building a second pulp mill”, said Astori.

The minister added that government expects to overcome the current slowdown with more investment, although admitting that for this to happen a favorable international context is essential.

“We are forecasting 0.6% growth this year and 2.6% in 2020, with the impact of major infrastructure and private investments” underlined the Uruguayan minister.

If the new pulp mill project is confirmed, UPM anticipates an investment of some 2.7billion dollars including a port terminal. Besides this the Uruguayan government is committed to building a central railway demanding US$ 880 million plus another US$ 90 million in accessory infrastructure. The railway and port terminal is a demand from the Finnish investors to consider the establishment of the pulp mill.

As to inflation Astori said that this year should reach 7.5%, above the 7% roof target, and 7% in 2020. Regarding employment, it is expected to fall this year but increase the following if all the investment projects effectively take place. Unemployment currently stands at between 8% and 9%, when in the good years of tail wind, it was down to almost 6%.