Brazil & Southern Cone - June 2012 (ISSN 1741-4431)

Uruguay is not armoured. Its economy is small and highly open, meaning that it rises and falls in line with external trends and is very vulnerable to negative exogenous shocks. Local policymakers fear that the sliding industrial activity figures are a precursor of worse to come. If policymakers do not act quickly, employment could begin to suffer and with it the domestic consumption boom that has shielded some local manufacturers from the worst of the global economic crisis.

In the first quarter of 2012, growth in the manufacturing industry (excluding oil refining) slowed to 2.4%, according to the national institute of statistics (INE), the second consecutive quarter of declining growth. In large part this is related to economic developments in Uruguay's larger neighbours (and its main export markets), Brazil and Argentina. In Brazil, the devaluation of the Real against the US dollar since April has made some Brazilian-made goods more competitive at home, luring Brazilian consumers away from (previously cheaper) Uruguayan imports.

In Argentina, the problems stem from a different source: the Argentine government's restrictions on imports and the imposition of tighter currency controls. Those Uruguayan industries that depend most on the Argentine (and Brazilian) export markets were the most affected. These industries account for nearly a quarter (23%) of Uruguay's manufacturing sector and include chemicals, paper, textiles, car parts, cooking oils, medicines and plastics. Overall, these sectors grew just 1.2% in the first quarter. Conversely, those industries geared towards domestic demand grew 4.5%.

Thanks to the still robust domestic market, the picture is not yet entirely gloomy, though it is worth noting that Industry Minister Roberto Kreimerman is relatively cautious about the industrial sector in 2012, projecting growth of just 3%, which is also the forecast of the national chamber of industries.

• Real estate

According to official figures compiled by the national tax directorate (DGI), tax revenues from the sale of properties shrank 0.7% year-on-year in the first quarter of 2012 to UR$320m, down from UR$322m in the same period of 2011. However, by number of transactions the fall was a much more significant 16.9%, meaning that fewer properties, but of higher value, were traded. According to Gabriel Conde, the president of the Uruguayan chamber of real estate, the slowdown is in part the result “of the Argentine measures restricting the exit of foreign currencies, as well as progress on the treaty for the exchange of information [on tax and assets], which has made some investors take caution”.