In the second quarter, the rate of economic growth slowed down, but it still grew at the year-on-year rate of 4.8%. Quarter-on-quarter, the rate of growth was much less impressive at 0.5%, according to the central bank.
In the first quarter of 2011, quarter-on-quarter growth was 2.1%. Local analysts say that the slowdown in the second quarter was much sharper than they had expected. All parts of the economy grew less. The worst affected was the primary sector, which contracted 2%. This was mainly due to fewer animals being sent for slaughter. This outweighed the effect of the record rice crop and a decent performance from the dairy industry.
Construction dropped by 2.4%, thanks to a drop in public investment. This was partly offset by an increase in private sector investment.
The biggest surprise to local economists was the 2.4% contraction in the sector covering commerce, hotels and restaurants. This did not square with what tourism operators had said was a bumper season.
Industry was up 0.4% year-on-year, but this was a big drop from its year-on-year increase of 2.8% in the first quarter. The transport and communications sector was strong, up 2.2%, quarter-on-quarter, but this was slower than the first quarter rate of 3.6%.
The extraordinary performance was the 40% jump in output from utilities (gas, water and electricity)
There is some doubt about the reliability of the second quarter figures from the central bank, however. Several local economists question the way the figures are calculated by the central bank and point out that they are not seasonally adjusted, so the lateness of Easter this year had a significant effect. These analysts say that the apparently abrupt slowdown may be more statistical than real. One question is how can these figures square with the strong figures for domestic consumption? These are up by 9%, year-on-year. There are also signs that business investment remained strong.
On the other hand, exports fell in the second quarter by 4.4% year-on-year. Lower beef exports were one reason. Imports, however, have been strong, up 7% year-on-year in the second quarter. It is possible that the strength of the Uruguayan peso has started to price domestic industry out of both its domestic and some export markets.
It is possible that the apparent drop in investment in the second quarter could be due to worries about the international situation. More likely, investment will fall further in the third quarter as the international economic situation remains uncertain.
The big question for Uruguay is what happens in Brazil. If the Brazilian economy accelerates again, like a train it will pull the rest of South America onwards and upwards. The consensus for GDP growth in 2011 is for a rate of about 5.5%. Previously, local analysts had been expecting a rate of 7%.
Interest rates: It is now just possible that the central bank may cut interest rates at its next monetary policy meeting from the current rate of 8%. Monthly inflation in August was 0.56%, bringing the 12 month rate to 6.1%.
