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Uruguay Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Uruguay is set to experience a period of structurally lower growth inthe coming years as investment into expanding agricultural productionis tempered and foreign capital flows begin to enter Argentina as thenew Argentine government liberalises its investment environment.Nonetheless, Uruguay will continue to outpace Latin America’saverage real GDP expansion as the country’s middle class supportsprivate consumption growth.Inflation will remain elevated over the coming years as the BancoCentral del Uruguay will not implement significant policy measuresto stymie price increases. The bank will instead focus on attempts tospur growth and encourage consumption with low borrowing costsas tempered investment weighs on economic growth.

There will be significant headwinds to the country’s balance of paymentsas Argentines begin to repatriate assets stored in Uruguayan banksand Chinese demand growth for agricultural goods is tempered overthe coming years as compared to the previous decade. This will havea negative impact on the current and financial accounts. Furthermore,it will lead to a continued depreciation of the Uruguayan peso.Major Forecast ChangeWe have revised our currency forecasts downward, toUYU37.00/USD in 2016 and UYU39.00/USD in 2017, as headwindsto the country’s balance of payments appear to be on the horizon,increasing downward pressure on the unit.

Table Of Contents

Uruguay Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Change5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Little Long-Term Investment Impact Of Constitutional Reform8
Constitutional change in Uruguay, which would modestly strengthen the power of the executive branch, will pass when it is brought up
to a vote in the coming months Nevertheless, Uruguay's operational environment will remain robust given a government commitment to
maintaining business-friendly policies
Chapter 2: Economic Outlook 9
SWOT Analysis 9
BMI Economic Risk Index 9
Economic Growth Outlook 10
External Dynamics Will Weigh On Real Growth10
Given the external headwinds facing Uruguay's export sector, we forecast that real economic growth will subside compared to recent
trends Nevertheless, a solid reputation for political stability and a government which is credibly committed to fomenting a positive
business environment will ensure the country outpaces most regional peers over the coming years
Monetary Policy 11
Inflation Will Remain Elevated Through 201711
The Banco Central del Uruguay will be hesitant to tighten its monetary policy, as growth will slow over the coming years due to tepid
demand growth from China Inflation will remain elevated through 2017 due to a depreciation in the Uruguayan peso
Monetary Policy Framework 11
Fiscal And Debt Outlook 12
Fiscal Shortfall Wide, But Narrowing12
Economic headwinds and political pressures to sustain spending will see Uruguay's fiscal deficit remain wide by historical standards in
2015 and 2016 Nevertheless, stronger growth and a government committed to fiscal sustainability will see the shortfall gradually narrow
in the coming years
External Trade And Investment Outlook 13
External Account Headwinds Ahead13
Uruguay will see exports fall in 2016 as China, the country's main export partner, faces economic headwinds stemming from its
rebalancing from investment driven growth towards consumption, which will slow Chinese growth in the coming years and temper
demand This will temper foreign capital inflows into Uruguay, which has long been one of the most attractive business environments in
Latin America
Outlook On External Position 14
Currency Forecast 16
UYU: Long-Term Depreciatory Trend Will Continue16
The Uruguayan peso will continue to depreciate in the coming months as tempered Chinese demand weighs on the country's trade
accounts Weakness in other major trade partners such as Argentina and Brazil will also spur long-term depreciation of the unit 16
TABLE: TOP 5 GOODS EXPORTS IN 201416
TABLE: TOP 5 GOODS IMPORTS16
TABLE: BMI CURRENCY FORECAST17
Regional Fundamentals 18
Latin America's Fundamentals Far Sounder Than In Previous Crises18
Economic pragmatism and progress on structural reforms means Latin America will be able to withstand ongoing macroeconomic
headwinds without triggering a sovereign or banking sector crisis While today's global economic environment will see a growth crisis
across much of the region, comparisons with previous crises show that macroeconomic fundamentals are sounder than at any point in
the past
TABLE : LATIN AMERICA-A BRIEF HISTORY OF ECONOMIC CRISES (1982-2002) 18
TABLE : LATIN AMERICA - A BRIEF HISTORY OF ECONOMIC CRISES (CONTINUED) 19
Chapter 3: 10-Year Forecast 25
The Uruguayan Economy To 2024 25
Long-Term Growth Slowdown Ahead25
Over a multiyear time horizon, Uruguay will face significant headwinds to headline growth as investment into its large agricultural
industry declines Consumption will become an increasingly key driver of growth as Uruguay's large middle class continues to see
disposable incomes rise
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK28
Education 29
TABLE: LATIN AMERICA - EDUCATION RISK30
TABLE: GRADUATES OF TERTIARY EDUCATION, 2006-201033
Government Intervention 34
TABLE: LATIN AMERICA - GOVERNMENT INTERVENTION RISK35
TABLE: PERSONAL INCOME TAX BRACKETS36
Chapter 5: BMI Global Macro Outlook 39
Global Outlook 39
Emerging Markets Bending, Not Breaking39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %41

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