MercoPress. South Atlantic News Agency

Uruguay economy forecasted to grow 3,5% in 2021, with inflation above target, Central bank report

The expected evolution of the activity level anticipates a recovery to pre-pandemic levels in the third quarter of this year

The Uruguayan Central bank in its second-quarter Monetary Policy report forecasted a 3,5% expansion for the country's economy, the same as the estimate of the Finance ministry, but anticipated higher inflation because of an increase in public rates and commodities.

However the Central Bank Expectations Survey, which consults local economists and experts, kept its average growth rate for the Uruguayan economy in 2021 almost one full point below government forecasts, that is 2,6%.

Based on the indicators advanced, during the second quarter, economic activity picked up again, says the bank's report. Preliminary data from May shows imports of capital goods and intermediate goods continued to show a significant dynamism. Likewise there is a good performance from consumption indicators, while at the same time there is an increase in the confidence index of consumers. On the exports side, volumes and prices remain elevated, but marginal growth is slowing”, adds the report.

Analyzing the different sectors, performance has been dissimilar. During recent months sectors that have boosted activity are those related to the production of goods, agriculture, industry, construction. But those related to the production of services continue to lag. This was particularly felt during the first quarter of the year because of a very poor tourism season.

Thus the Uruguayan economy can be expected to end 2021 with an average growth of 3,5%, with something less in 2022, but similar to the values anticipated in the previous report.

The basic scenario, following on the strong 2020 contraction, the expected evolution of the activity level anticipates a recovery to pre-pandemic levels in the third quarter of this year. As to the components of this advance, private investment is a great booster, including the new pulp mill under construction, government spending and exports. In 2022 exports will continue to have an impulse together with private consumption.

However when it comes to inflation the central bank report marks a one full percentage point increase (from a 7% axis) for 2021, because of the increase in fuel costs, and international prices of commodities.

Nevertheless, despite the current spike, most experts consulted believe that the range of inflation will eventually accommodate to its monetary policy horizon which is between 3% and 6%. In effect the Central bank anticipates that in 2022, during the second quarter, inflation will return to target.