Uruguay: Central Bank estimates 4% GDP growth in 2021 and refers to “strong growth phase”

RIO DE JANEIRO, BRAZIL – The Ministry of Economy and Finance (MEF) Director of Economic Policy Marcela Bensión stated that a 4% growth floor in 2021 “is not far-fetched” after the third quarter GDP data was released.

On Tuesday, the monetary authority released a statement with the analysis and grounds for establishing the Countercyclical Capital Cushion requirement for financial institutions at 0% from January 1, 2023. The document provided assessments on the performance of the Uruguayan economy.

The BCU report stated that “in 2021, a reversal of the cycle is observed, because although GDP fell in 2020 (5.9%), a growth process began in 2021, where components such as consumption, investment and exports were boosted.”

“The analysis conducted assumed GDP growth of 4% for 2021, based on sectoral activity indicators, the labor market, exports and domestic spending,” it stated in a report footnote.

PREVIOUS FORECASTS FELL SHORT

A year ago, the MEF projected 3.5% GDP growth in the 12 months, a forecast that economic analysts considered very optimistic at the time. Last January, the BCU’s Survey of Economic Expectations showed that private agents expected a figure of 3%. In its latest Monetary Policy Report for the third quarter of 2021, the BCU forecast 3.4% growth for the Uruguayan economy.

However, as better figures began to be observed towards the end of the year – first in terms of employment and then in terms of third quarter GDP – several economists and agents began to raise their forecasts. The BCU’s Economic Expectations Survey published in December showed a median response rate of 4%, a percentage point higher than the first of the year.

Regarding the latest official survey, economist Javier de Haedo went further and said on Twitter: “It is likely that some respondents have answered before the third quarter data were released. If GDP were to grow 4% then it should drop in the fourth quarter. And it doesn’t look like that is likely. The other possibility would be that earlier data were recalculated downward.”

“STRONG GROWTH PHASE”

The document published by the BCU on Tuesday detailed that “the last strong growth phase began in 2004 and ran through 2013, (10 years). The slow growth phase began in 2014 and ran through 2019 (6 years), and in 2020 a downturn phase began, which lasted only that year.”

“According to the estimated Markov Switching model, a new phase of strong growth began in 2021, and therefore 2021 falls under this type of growth regime. The transition matrix indicates that the probability of sustaining the same (recovery) regime is 83.5% and the probability of switching to a growth regime is 16.5%,” the agency stated.