Uruguay's real estate-driven boom worrying

March 29, 2013 at 5:21 AM
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MONTEVIDEO, Uruguay, March 29 (UPI) -- Uruguay's real estate-driven economic boom is clouding the outlook for growth in the Latin American country, amid fears that optimism over property price escalation may not last.

Uruguay's national earnings rose 3.9 percent last year, largely due to a rising momentum of construction. The rise came amid predictions the Central Bank's target of 4 percent growth during 2012 could not be met.

The 3.9 percent growth was achieved mainly due to economic recovery in several sectors during the later part of the year.

Uruguay's economic performance in recent months has given rise to disagreements among economic groups analyzing the country's data. A slowdown of the economy began early in 2012 amid warnings that growth would be much lower than 6.5 percent in 2011.

The government of President Jose Mujica has been battling inflation and applied price freezes on utilities in a bid to discourage an upward spiral in prices.

Despite steady industrialization and growth in processing industries related to its agricultural resources, Uruguay depends heavily on exports of natural agricultural and livestock produce.

Dairy products and meat, rice, leather products and wool are major mainstays of Uruguayan economy and the government has struggled to reduce income disparities between native and non-European nationals and Uruguayans of European stock.

Central Bank data showed that "a strong expansion of domestic demand" continued to drive gross domestic product.

That demand has impacted on key sectors of building, communications and transport. Each reported dramatic growth in 2012 -- 8.9 percent in construction, 6.7 percent in communications and transport. Growth in other sectors exceeded expectations at 36.9 percent, the data indicated.

Analysts said some of the trends could spell trouble. The rising demand has already affected Uruguay's trade balance and a 13.6 percent jump in imports contrasts with 1.6 percent increase in exports.

Despite upbeat government forecasts, independent analysts said the growth target of 4 percent for 2013 was at risk and a shortfall in growth couldn't be ruled out.

Analysts said Uruguay faced a continuing problem of a weaker U.S. dollar making imports more attractive than before and warned that imports could continue to rise.

The Central Bank's monetary committee said that "inflation continues to be one of the main concerns in the map of risks" of Uruguay's economy.

Uruguay's inflationary rate rose in February to 8.89 percent from 8.72 percent in January -- well above the bank's target of 4-6 percent. Central Bank data suggest consumer prices could rise 8 percent, more than an average forecast in January.

That outlook puts at risk the country's growth and financial standing, analysts said. In last year's ratings actions, Uruguay's credit rating was raised to investment grade after the country reduced debt and diversified exports but this year's outlook raises new questions about the economy's direction.

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