uruguay economic outlook - bbva research · 2018. 9. 6. · uruguay economic outlook 1st half 2017...

URUGUAY ECONOMIC OUTLOOK

1ST HALF 2017

1

URUGUAY Economic Outlook

MAY 2017

The economy is recovering despite greater global uncertainty


1ST HALF 2017

Main messages

• World growth continues to improve, accompanied by

a certain clarification of US policies. Overall, global

risk remain a concern.

• The downturn in Latin America ends. Growth is

expected to increase from -1.4% in 2016 to 1.1% in

2017 and 1.8% in 2018. Growth will still be below the

potential for the region, closer to 3%.

• Uruguay returns to growth, 1.9% in 2017 and 3% in

2018, with a strong impulse from investment.

• The fiscal balance is improving, although at a slower

rate than expected.

• Inflation will remain outside the target range, reaching

8% in 2017 and 7.9% in 2018.

• The Fx rate will end 2017 at $31.1, avoiding a

deterioration in competitiveness vis a vis its main

regional partners.


1ST HALF 2017

Global

environmentGrowth has consolidated but there are still risks


1ST HALF 2017

4

The main trends continue…

Recovery of

industrial activity and

international trade confirmed

Financial markets stable

Headline inflation continues to rise,

but core inflation holds steady

…and the probability of the baseline scenario increases

Substantial stimulus to the US

economy seems less likely…

…but so do more

protectionist scenarios

Central banks move

towards normalisation

Positive global dynamics


1ST HALF 2017

Growth of gross world product (GWP)

Forecasts based on BBVA-GAIN (% QoQ) Confidence indicators are at

very high levels, although real

indicators only partially reflect

the improvement

China and advanced

economies show signs of

strength. However, other

emerging economies are

performing more erratically

Source: BBVA Research

The world’s economy has been accelerating since early 2017

5

0,4

0,6

0,8

1,0

1,2

CI 40%

GDP growth

Average for period

CI 20%

CI 60%

Ma

r 1

4

Ju

n 1

4

Se

p 1

4

De

c 1

4

Ma

r 1

5

Ju

n 1

5

Se

p 1

5

De

c 1

5

Ma

r 1

6

Ju

n 1

6

Se

p 1

6

De

c 1

6

Ma

r 1

7 (

e)

Ju

n 1

6 (

e)


1ST HALF 2017

BBVA financial stress index (normalised index) Volatility has fallen, despite

uncertainty about economic

policy

Monetary and fiscal stimulus

measures mask a certain

underlying unease

Europe has been the

exception, with sovereign

spreads rising somewhat,

although the tensions have

eased after the French

elections

Financial stresses remain low

Source: BBVA Research6

-1,5

-0,5

0,5

1,5

2,5

3,5

Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17

Latam Emea Asia

Taper Tantrum

China I China II

Trump


1ST HALF 2017

7

US Federal Reserve and European Central Bank (ECB) interest rates(bps)

Source: BBVA Research, FED and

ECB

The Federal Reserve continues to raise its monetary policy rate, although it remains cautious as far as

the economic scenario is concerned

The ECB is increasingly discussing exit guidelines for monetary policy

Central banks move towards normalisation of their policies

0,0

0,5

1,0

1,5

2,0

2,5

en

e-1

6

ab

r-1

6

jul-16

oct-

16

en

e-1

7

ab

r-1

7

jul-17

oct-

17

en

e-1

8

ab

r-1

8

jul-18

oct-

18

FED BCE

BCE

Fin de la adjudicación plena

Reducción del QE

BCE

Fin del QE, pero política

de reinversión


1ST HALF 2017

USA

2017

2.32018

2.4

LATIN AMERICA

2018

1.8

EURO ZONE

CHINA2017

1.7

2018

5.8

2018

1.7

2017

1.1

2017

6.3

Source: BBVA Research. Latin America comprises: Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and

Venezuela

WORLD

2018

3.42017

3.3

Down

Up

Unchanged

World growth revised upwards…

8


1ST HALF 2017

We continue to see commodity prices gently converging to their

long-term equilibrium

9

Source: BBVA Research and Haver

Favourable exchange rates(Apr 16 = 100)

Oil prices continue to be supported by the OPEC agreement on

production quotas and lower inventories in the US. Prices may

end up below our forecast of US$57 a barrel despite demand

from China remaining firm.

The price of soy beans returned to its 2015 level, with stocks

gradually recovering thanks to good harvests in the southern

hemisphere.

Similar growth levels in terms of supply and demand have

resulted in a gradual downward adjustment to farm prices

Markets close to their long-term equilibrium(Quarterly averages)

Source: BBVA Research and Haver

60

70

80

90

100

110

120

130

140

150

160

Dec-1

4Jan-1

5F

eb-1

5M

ar-

15

Apr-

15

Ma

y-15

Jun-1

5Jul-1

5A

ug

-15

Sep

-15

Oct-

15

Nov-1

5D

ec-1

5Jan-1

6F

eb-1

6M

ar-

16

Apr-

16

Ma

y-16

Jun-1

6Jul-1

6A

ug

-16

Sep

-16

Oct-

16

Nov-1

6D

ec-1

6Jan-1

7F

eb-1

7M

ar-

17

Apr-

17

Ma

y-17

Soybean Oil brent Milk

0

20

40

60

80

100

120

0

100

200

300

400

500

600

USD

x B

arr

el

USD

x T

on

Soybean (left) Oil Brent (right)


1ST HALF 2017

The recovery seen in Latin America’s financial markets has continued,

including in Mexico

The prices of key financial assets

and exchange rates continue to

record significant gains this year,

due to a number of factors:

• Less concern regarding the effects

of US policy

• The perception that the Fed will

gradually increase interest rates

• Faster growth worldwide

• Higher raw material prices

• Economic activity recovering in a

number of countries

Financial asset prices: percentage change since US

elections*

10

Source: BBVA Research, Haver Analytics and DataStream *Changes between 7 November and

14 April. Exchange rate: domestic currency / dollar. In this case, an increase indicates

depreciation. Country risk premium: EMBI.

-30

-20

-10

0

10

20

30

AR

G

BR

A

CH

I

CO

L

ME

X

PA

R

PE

R

UR

U

Exchange Rate Stock exchange Country risk premium


1ST HALF 2017

Certain stability with limited exchange rate depreciations moving

forward

Exchange rate appreciation in most

countries since January. Marked

recovery in Mexico

We expect to see a moderate

depreciation of exchange rates

moving forward to the extent that

there will be a relaxation of the

monetary policy in South America,

in contrast to the Fed’s higher

interest rates

Some margin for continues

appreciation in Mexico in the short

run. FX forecasted to appreciate in

Chile and Colombia in 2018

11Source: BBVA Research and Haver

Exchange rate against the dollar(Dec 2015 index = 100)

70

90

110

130

150

170

Dec

-15

Dec

-16

De

c-1

7

De

c-1

8

De

c-1

5

De

c-1

6

Dec

-17

Dec

-18

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-15

De

c-1

6

De

c-1

7

Dec

-18

Dec

-15

De

c-1

6

De

c-1

7

Dec

-18

De

c-1

5

Dec

-16

Dec

-17

Dec

-18

Dec

-15

Dec

-16

De

c-1

7

De

c-1

8 .

ARG BRA CHI COL PAR PER URU

Forecast Actual

depreciation vis-à-vis USD


1ST HALF 2017

12

Argentina experiencing a U-shaped recovery led by

investment growth

Inflation easing off more slowly than forecasted.

In the case of Brazil, we forecast growth of 0.9% this year and

1.8% in 2018

The failure to pass social security reforms could put growth at

risk

Uruguayan external demand boosted by economic recovery in

Mercosur partners

Argentina’s growth driven by investmentChange %

Brazil returns to growth in 2017change %

Source: BBVA Research Source: BBVA Research

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2013 2014 2015 2016 2017e 2018e

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2013 2014 2015 2016 2017e 2018e

GDP Investment


1ST HALF 2017

URUGUAYA need to consolidate fiscal accounts


1ST HALF 2017

ECONOMIC ACTIVITY: 2017 growth to reach 1.9%

14Source: BBVA Research

In 2016, Uruguay emerged from a period

of stagnation to grow 1.5%.

Strong contribution to growth from the

external sector through the marked fall in

imports. Private consumer spending

began to show signs of recovery (+0.7%).

In 2017, growth will be led by domestic

demand, in particular by private consumer

spending, which will continue to improve

(+1.5%) in view of higher real wages and

credit expansion.

Paper pulp mill investment will be key to

driving growth in 2018, although it is likely

that its start up will be delayed a few

months.

Increased exports, particularly in the

service sector, will moderate the

weakening of the trade balance caused by

higher imports as economic growth

recovers

GDP, by expenditure component(contribution to growth, %)

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015 2016 2017e 2018e

Private Comsumption Public Comsumption Investment

Exports Imports GDP

LATAM GDP


1ST HALF 2017

ECONOMIC ACTIVITY:

Investment will be key

to ensuring a rate of

growth close to the

potential level


From 2018 onward, Uruguay will

record levels of growth of around

3% (potential growth). However,

in order to do so, it is essential

that both UPM paper mill project

and the necessary public

investment in infrastructure be

implemented

As well as this mega-project

which should begin in 2018,

there are also several lesser

projects which are nonetheless

relevant to stimulating

investment, both public and

private.

Infrastructure required to build the third pulp mill

Private UPM investment = US$4 billion

Investment in infrastructure (public) = US$1 billion


1ST HALF 2017


Higher current expenditure (on health)

raised the 2016 primary deficit to 0.6% of

GDP, with an overall fiscal deficit of 3.9%

of GDP, its highest level in almost three

decades.

The government has maintained its fiscal

targets, with the aim of reducing the deficit

to 2.5% by the end of its term in 2019.

The first stage of tax adjustments was

undertaken in 2016 with the alterations to

the calculation of the corporate income

tax, with the second phase coming in

during 2017 with the increase in the

personal income tax rate.

As well as revenue hikes, the deferral or

expenditure and the reduction in

investment by public companies will help

to reduce the deficit

The Uruguayan government initially

expected that these measures would lead

to a 1 percentage point reduction of the

deficit in 2017

BBVA fiscal result forecasts vs. budgeted figures(as % of GDP)

FISCAL SECTOR: Fiscal consolidation required

0,0%

-0,6%

-0,2%

0,2%0,5%

-3,5%

-3,9%-3,6%

-3,1%

-2,7%

-5,0%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

1,0%

2015 2016 2017f 2018f 2019f

Primary Result Global Result Budget Global Result


1ST HALF 2017


Income tax revenue in real terms Millions of pesos in real terms (at 2005 prices)

FISCAL SECTOR: Increasing tax revenues

For 2017 we estimate a slight improvement in

the primary deficit to 0.2% of GDP while the

overall figure will reach 3.6% of GDP based on

the assumption that the Government will at

least be able to maintain a constant primary

expenditure / GDP ratio.

Tax revenue are expected to increase due to

higher personal income tax rates, although the

improvement will be limited by the adverse

impact of the measure on consumer spending.

The impossibility of reducing primary spending

in a context of low growth limits the chances of

obtaining a primary surplus big enough to bring

down levels of indebtedness In 2016, primary

spending reached 30% of GDP.

In 2018, an additional improvement driven by

greater economic growth and efficiency gains

in spending will practically balance the primary

deficit, maintaining the gradual reduction in the

global deficit.

Total DGI revenue collection in real terms(% variation YoY)

-2,3%

6,3%8,7%

4,7%1,5%

-2,1%

-4,8%

20,3%

-2,7%

0,8%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

IVA IMESI IRAE IRPF TOTAL DGI

2015 2016

4.500

4.600

4.700

4.800

4.900

5.000

5.100

5.200

5.300

5.400

1Q-16 1Q-17

mill

ones

de

peso

s

11,4%


1ST HALF 2017


EXTERNAL SECTOR: Gains from terms-of-trade improved the trade

balance in 2016

In 2016, the terms-of-trade improved

5.7% due to a fall in import costs, driven

by the contraction in the price of oil.

With this improvement and the sharper

fall in imports compared to exports,

Uruguay recorded a trade surplus of USD

1.042 billion in 2016.

Nevertheless, for 2017 we forecast

stronger import price growth (mainly due

to higher oil prices) which will result in a

fall of 2% in the terms of trade.

Stronger import growth due to economic

recovery will also erode the trade surplus

to a deficit of USD 726 million in 2017

Terms of trade(2005 index base = 100)

80

90

100

110

120

130

140

150

160

170

180

2005 2007 2009 2011 2013 2015 2017e

Export Prices Import Prices Term of Trade


1ST HALF 2017


EXTERNAL SECTOR: Substantial – albeit temporary – improvement

in external accounts

External sector: the current account and its componentsAs a percentage of the GDP

The current account deficit fell to -0.2%

of GDP in 2016 as a result of a surplus

in both goods and real services

balances.

Tourism revenues grew by 1.2% of GDP

in 2016 and considering actual data from

the first quarter of 2017, we expect a

further improvement in the real services

balance.

In 2017 we expect to see a slight fall in

the current account due to the reduction

in the goods trade balance

In 2018 the current account will reach a

deficit of 2.1% due to increased imports

of capital goods for the third pulp mill

although it will be fully financed through

FDI inflows.

-1,8%

-2,7%

-5,0%-5,0%

-4,5%

-2,1%

-0,2%

-1,0%

-2,1%

-5,5%

-4,5%

-3,5%

-2,5%

-1,5%

-0,5%

0,5%

1,5%

2,5%

3,5%

2010

2011

2012

2013

2014

2015

2016

2017

e

2018

e

Trade Balance

Real Servicies Balance

Interest, Dividend and Net Transfers

Current Account


1ST HALF 2017

Inflation will slow down

but remain outside the

target range

20

Source: National Statistics Institute (INE) and BBVA

Research

Inflation forecasts based on BCU surveyYoY variation, %

Inflation slowed down by 1% in 2016,

mainly as a result of FX appreciation.

Average core inflation stood at 7.5%

YoY in 4Q16 and continued to fall

slowly throughout 2017 to 6.8% YoY in

April.

Despite the contractionary bias of

monetary policy, consensus inflation

forecasts continue to be above the

BCU’s target range for 2017-18

We estimate that once base effects

disappear, inflation will rise to 8% due

to:

Higher peso depreciation rate

Sluggish consolidation of the fiscal

deficit

Wage agreements that include

deferred corrective clauses for past

inflation

Consumer price componentsYoY variation, %

0

2

4

6

8

10

12

0

2

4

6

8

10

12

2016 2017 2018

Aug-16 Sep-16 Oct-16 Nov-16

Dec-16 Jan-17 Feb-17 Mar-17

Apr-17 CB Target Range

0

5

10

15

20

25

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun-

15

Sep

-15

Dec

-15

Mar

-16

Jun-

16

Sep

-16

Dec

-16

Mar

-17

Jun-

17

Sep

-17

Dec

-17

Mar

-18

Jun-

18

Sep

-18

Dec

-18

Seasonal (4,9%) Core (71,3%) Regulated (23,8%) CPI


1ST HALF 2017

21Source: BBVA Research, Haver, BCU, INE

URUGUAY

Real bilateral exchange rate with Argentina and BrazilDecember 2001 index base = 1

With the help of Argentina, real appreciation of the Uruguayan peso

will be reduced by 8% in 2017

Despite a slight improvement in 2016,

Uruguay’s real multilateral exchange rate

is still 20% appreciated compared to

historical averages

Over the coming two years, Uruguayan

competitiveness will improve, at a

stronger rate compared to Argentina

than to Brazil

While the Brazilian real and Argentinian

peso will depreciate at a rate below

inflation, the Uruguayan peso is

expected to depreciate at a stronger

pace than inflation.

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

2,0

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Brazil Argentina

LR avg. = 1,33

Depreciate

Appreciate

LR avg. = 0,77


1ST HALF 2017

22

Uruguay concentrates practically all its infrastructure

investment in the (renewable) energy sector.

Uruguay occupies sixth place out of 19 countries in terms of its

capacity to attract private investment in infrastructure due to the

regulatory framework and institutional strength, although there is

still room for improvement as far as management capacity is

concerned.

As far as competitiveness is concerned, there is room for

improvement through investment in transport infrastructure

Investment in infrastructure by sector, 2013 (% of GDP)

Level of development in Latin American countries in terms of public-private partnerships, 2014

The Infrascope measures the capacity of a country to attract private

investment in infrastructure through public-private partnerships (PPP). It takes

six variables into consideration in order to reach its total figure.

Source: BBVA Research based on World Bank figures Source: BBVA Research based on The Economist and IDB figures

77 75 71 6861

5346 44 42 39 38 37 37 34

24 22 2116

3

0

25

50

75

100

Chile

Bra

sil

Pe

rú

Mé

xic

o

Colo

mbia

Uru

gua

y

Gu

ate

mala

Jam

aic

a

El S

alv

ad

or

Costa

Ric

a

Hon

du

ras

Pa

rag

ua

y

Tr

y T

oba

go

Pa

na

má

R. D

om

inic

an

a

Ecua

dor

Nic

ara

gu

a

Arg

en

tina

Ve

ne

zue

la0,5

0,7

1,5

0,7

1,1

0,50,4

0,1

0,2

0,5

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

Argentina Brazil Uruguay

% G

DP

Energy Transport Telecomunications Water & Sewerage

1,93%

1,62%

2,67%


1ST HALF 2017

Main messages

• World growth continues to improve, accompanied by

a certain clarification of US policies. Overall, global

risk remain a concern.

• The downturn in Latin America ends. Growth is

expected to increase from -1.4% in 2016 to 1.1% in

2017 and 1.8% in 2018. Growth will still be below the

potential for the region, closer to 3%.

• Uruguay returns to growth, 1.9% in 2017 and 3% in

2018, with a strong impulse from investment.

• The fiscal balance is improving, although at a slower

rate than expected.

• Inflation will remain outside the target range, reaching

8% in 2017 and 7.9% in 2018.

• The Fx rate will end 2017 at $31.1, avoiding a

deterioration in competitiveness vis a vis its main

regional partners.


1ST HALF 2017

ANNEX:


1ST HALF 2017

25f = forecast

Macroeconomic forecasts

2013 2014 2015 2016 2017f 2018f

GDP (% y/y) 4,6 3,2 0,4 1,5 1,9 3,0

Inflation (% y/y, eop) 8,5 8,3 9,4 8,1 8,0 7,9

Inflation (% y/y, average) 8,6 8,9 8,7 9,6 7,5 7,2

Exchange Rate (vs. USD, eop) 21,3 24,1 29,7 28,8 31,1 32,3

Exchange Rate (vs. USD, average) 20,4 23,2 27,3 30,1 29,7 31,7

Loan Interest Rate (%, average) 17,7 21,5 21,4 24,3 22,6 21,8

Private Consumption (% y/y) 5,5 3,0 -0,5 0,7 1,5 1,9

Government Consumption (% y/y) 4,9 2,5 2,2 1,6 1,0 0,0

Investment (% y/y) 4,8 0,0 -9,0 0,7 4,0 10,0

Fiscal Balance (% GDP) -2,4 -3,5 -3,5 -3,9 -3,6 -3,1

Current Account (% GDP) -5,0 -4,5 -2,1 -0,2 -0,9 -2,1

Source: BBVA Research

Uruguay

uruguay economic outlook - bbva research · 2018. 9. 6. · uruguay economic outlook 1st half 2017...

Documents