October 17, 2020
Uruguay latest publications
The Uruguayan Financial System is healthy despite having gone through the worst months in recent history in terms of activity and employment. The quick reaction of the CB with timely measures to avoid the rupture of the payment chain allowed it to overcome these difficulties and to maintain a comfortable capital surplus.
The rate of inflation in Uruguay has dropped significantly in recent decades but still remains high. The Monetary Policy Committee announced that it will use the interest rate as an instrument of monetary policy and set it at 4.5% per year. It also ratified the new target range of 3% to 6% from September 2022.
Although the capacity to pay, as expressed by the debt-to-GDP ratios, does not seem unsustainable, the government should promote fiscal consolidation in order to prevent the debt from continuing to increase after 2022, ensuring sustainability in the medium term and the preservation of the Investor Grade.
Unemployment in Uruguay reached 10.1% in March, reflecting the effect of measures implemented to contain the outbreak of the coronavirus, in a poorly performing labour market. We expect the unemployment rate to rise to 14.2% this quarter. What are the challenges for the labor market in the wake of the pandemic?
Uruguay will be affected by the combination of an intense, but transitory, negative shock of external demand and a brake on domestic activity resulting from voluntary confinement arranged to avoid massive contagion. In this context, activity will contract by 3.1% in 2020.
We maintain our growth forecast for Uruguay at 1.3% in 2019 and we revised it downwards in 2020 to 1.9% (before 2.2%). An environment of lower global growth, in Argentina and Brazil, as well as the lack of definition of the beginning of the third pulp mill construction will determine a moderate growth in the next two years.