Uruguay in Focus a Quarterly Bulletin Issued by the Debt Management Unit of the Ministry of Economy and Finance January 2020
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Uruguay in focus A quarterly bulletin issued by the Debt Management Unit of the Ministry of Economy and Finance January 2020 Mr. Luis Lacalle Pou won the 1) REAL SECTOR stronger outbound tourism abroad by national elections and will become the Uruguayans. next Uruguayan president for the period The Uruguayan GDP increased 0.9% 2020-2025. President elect Lacalle will in 2019Q3 YoY, while it grew 0.6% Production Sectors take office on March 1st. quarter-on-quarter in seasonally adjusted terms. Higher economic activity in transport, Lacalle led a coalition of 5 opposition storage and communications and the parties that secured 48.7% of the votes, In the third quarter of 2019, the manufacturing sector, was partially against his opponent Mr. Daniel economy expanded 0.9% in comparison offset by the decline in construction and Martinez of Frente Amplio (the to the same period last year, while it primary activities production. incumbent party), who got 47.5%. The accelerated to 0.6% in seasonally incoming administration will have adjusted terms with respect to the The Transport, Storage and majority in Congress. second quarter. Considering the first Communications sector increased its three quarters, as of 2019Q3, the value added by 3.5%, mostly as a GDP increased 0.9% in 2019Q3 economy grew 0.2% YoY. consequence of the expansion of YoY, while it grew 0.6% in s.a. terms. mobile data services and the storage Demand Components and transport of summer crops as a Annual inflation stood at 8.8% YoY in result of a higher harvest in 2018/2019. 2019, heavily influenced by a spike in From the expenditure side, gross fixed meat prices. capital formation increased 0.8%, The manufacturing sector grew 2.7% compared to -4.1% in the year to YoY in 2019Q3. This was mostly The current account balance posted 2019Q2, and was mostly driven by the explained by a rebound in the exporting a surplus of 0.6% of GDP in the twelve private sector. By type of asset, it branches, such as the cellulose pulp months to 2019Q3, while the trade stands out the increase in the imported and syrups and concentrates, partially balance registered a surplus of 6.1% of machinery and equipment, while activity weighed down by a drop in cattle GDP. in building construction decreased. slaughter plants production and dairy Investment growth in fixed capital stock industry activity. Oil refinery and The non-financial public sector is still slow, but there are indications beverage, which are mostly oriented to fiscal deficit reached 2.9% of GDP in that it may be bottoming out. the domestic market, also saw a pickup 2019; excluding the extraordinary in economic activity. transfers to the social security trust Consumption also firmed up, growing fund, the fiscal deficit reached 4.2% of 1.2% YoY on the back of stronger The supply of electricity, gas and water GDP. household consumption (1.3%). registered an expansion of 1.2% (YoY), on the back of higher generation and Uruguay continues to rank first in From an external demand perspective, distribution of electrical energy from LATAM in terms of of institutional exports expanded 9.3% in 2019Q3 with renewable sources, mostly stability, lowest corruption perception respect to the same period last year, hydroelectric. The level of activity in the and social mobility. explained by an increase in goods subsector commerce, restaurants and exports, mostly soybeans´. On the hotels stayed unchanged in the third Almost 100% of electricity generation contrary, exports of services declined, quarter of last year in YoY terms. during 2019 came from renewable mainly due to less inbound tourism from energy sources. Argentinians. Output of primary activities diminished 7.8% in 2019Q3 YoY, due to a lower Sauid Arabia opens the beef Imports of goods and services also livestock production despite the market for Uruguayan producers. grew, yet at a softer pace than exports expansion of the agricultural and (1.6% YoY), and mostly explained by forestry sectors. Regarding the former, it highlights the reduction in cattle 1 raising, as a consequence of less increase in imports (3.5%). Regarding slaughtery, live-cattle exports and milk Employment rate Unemployment rate the former, the main negative impact may-15 ago-15 nov-15 feb-16 may-16 ago-16 nov-16 feb-17 may-17 ago-17 nov-17 feb-18 may-18 ago-18 nov-18 feb-19 may-19 ago-19 production for industrial purposes. nov-19 arose from the drop in inbound turism, 60 8.9 mostly Argentinians, due to the In contrast, agricultural activity showed unfavourable economic situation in the a positive performance as a result of an 58 7.9 neighbour country and the evolution on increase in wheat production, partially bilateral relative prices. At the same offset by a reduction in the barley crop time, the rise in import of services was 56 6.9 area. Similarly, the forestry sector also determined by higher expenditures grew due to a higher wood demand. made by Uruguayans abroad. 54 5.9 Construction activity fell 3.6% in In the year ending in 2019Q3, the Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 May-16 May-17 May-18 May-19 2019Q3 with respect to the same period Source: National Bureau of Statistics Primary Income balance posted of the previous year, driven by a approximately a USD 3.3 billion deficit, slowdown in building construction in 2) EXTERNAL SECTOR USD 197 million smaller than a year Montevideo city and other public sector CAB registered a surplus of 0.6% of ago. The improvement was mostly constructions. GDP in the year ending in 2019Q3 explained by accrued interests on Central Bank Reserve Assets and on Finally, the Other Activities aggregate, The Current Account of the Balance of public banking sector assets held which includes financial and insurance Payments (CAB) showed a positive abroad, as well as the private sector services, real state, social and other result of 0.6% of GDP in the year resident´s portfolio gains from cross- services of the government, education ending in September of 2019, which border investments. and health services, among others, implied an improvement of 0.7 p.p. from increased 1% in the third quarter of a year ago. This was driven by both a Finally, the Secondary Income balance, 2019 in YoY terms. surplus in the trade balance of goods which captures net current transfers, and services (6.1% of GDP) as well as had a positive value of around 0.3% of Contribution to GDP Growth by Expenditure in the Secondary Income (0.3%), GDP. (On a quarterly basis) partially offset by a deficit in the Primary Income category (of 5.8% of GDP). The Financial Account registered a net 6 (in % of GDP) outflow of USD 384 million in the year Current Account Balance ended in 2019Q3 (including the Errors 4 (In % of GDP) and Omissions component). That 2 Trade Balance Primary Income outflow was explained by financial Secondary Income CAB movements from the private sector, 0 8 while the public sector contributrf with -2 net capital inflows. 4 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 2018Q3 2019Q1 2019Q3 Gross Fixed Public Investment Net Exports 0 The drop in Central Bank Reserve Gross Fixed Private Investment Government Consumption Assets of USD 1,722 million in the 12 Private Consumption GDP growth Source: Central Bank of Uruguay -4 months to September 2019 happened mostly during the last quarter of the The nationwide unemployment rate -8 period (76% of the total reduction), and 2012 2013 2014 2015 2016 2017 2018 2019Q3 stood at 9.2% in November, whereas in Source: Central Bank of Uruguay was explained by different factors. the last twelve months, on average, the Firstly, the CBU sold USD 508 million to rate was 8.9%. Likewise, the The balance in the trade of goods intervene in the exchange market to employment rate was 57.2%, improved USD 725 million —reaching smooth exchange rate volatility. representing 1.4 percentage points USD 2.9bn— due to a better result in Second, Central Government deposits lower than November 2018 (58.6%). the general merchandise balance, as decline due to debt service Meanwhile, the average real wages the goods under merchanting saw a amortizations. Finally, social security increased 1.3% on average in 2019. small reduction in its net exports. funds and private banks also withdrew some part of their deposits held in the On the other hand, the Services CBU. balance decreased USD 506 million, or 50% in comparison to the same period By end-December, international last year, posting a surplus of USD 507 reserves of the CBU totaled USD million. This was explained by both a 15.6billion, or 26.1% of GDP. This level Unemployment and Employment Rate reduction of exports (-7.5%) and an is well above the upper bound of the (Average of last 12 months, in %) 2 IMF reserve adequacy benchmark In line with the cash basis framework, Non-Monetary Public Sector Debt (which takes into account potential the operation generated an (In % of GDP, end-of-period) balance of payments drains, including improvement in the fiscal result of the short-term external liabilities). Central Government in October for USD Gross Debt Net Debt 70 Importantly, international assets 168 million (approximately 0.3% of 61.3 remained largely stable over the last GDP). 60 few years, with Reserves to GDP ratio 50 51.7 consistently surpassing 25% since This figure is explained by the following 40 2012. two components: i) the premium 30 generated by the reopening of bonds at International Reserves market prices above par, for a total of 20 (End-of-period) USD 158 million and ii) the net balance 10 charged on interest, which amounted to 0 In USD billion In % of GDP (RHS) 2012 2013 2014 2015 2016 2017 2018 2019Q3 USD 10 million.