Uruguay Economic Outlook. First half 2020

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.

Key points

• Key points:
• In addition to the cost in human lives, the spread of COVID-19 is causing a downturn in the global economy as a result of containment measures. Global GDP will fall by 2.4% in 2020 (previously +3.20%) to recover to 4.8% in 2021
• In Uruguay, business will be affected by a combination of a strong negative external demand shock and a slowdown in domestic activity due to containment measures designed to avoid widespread contagion. We revised GDP downward to a fall of 3.1% in 2020 (previously +1.2%) with a rapid recovery to 3.3% in 2021 (previously 1.8%)
• Sharp increase in fiscal imbalance due to drop in revenue collection and increased expenditure due to crisis relief measures
• The BCU (Central Bank of Uruguay) approved the floating exchange rate policy, moderating volatility. The dollar will close Dec 2020 at 47 given the weakness of trading partners' currencies
• Inflation will reach 9.7% as a result of the rise in the exchange rate. The Central Bank of Uruguay launched a series of measures to mitigate the effect of the pandemic without neglecting the inflationary target, and declared its intention to correct the target range to lower levels

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