Good Perspectives for Uruguay

• Uruguay is less exposed to Brazil’s or Argentina’s desacceleration, because its main partner is China

• Uruguay changed its financial matrix and is no more totally dependant on its neighbours

• The home prices grow accompanying the population’s income (Gross Domestic Product), so researchers do not expect an overvaluation of properties’ prices for the average in Montevideo

Montevideo, February 06, 2014

This year we are seeing a desacceleration in Latin America’s economic growth. Latin America grew 1.6% less than the esteemed potential, which is more than 3%. As part of the Real Estate conference, the economist Gloria Sorensen, Team Leader of the Research Team in BBVA Banco Francés, explained BBVA’s research results. The decrease in the growth, according to the research, is due to a significant moderation of the internal demand, and particularly of the investment.

It is estimated that the decrease will be higher from the third trimester onwards, promoted by an increase in the global growth and by a recovery of the investment. It is expected that the second half of 2014 there is to be an improvement, and for next year it is foreseen for Latin America to grow 2.5%.

This deacceleration was reflected in the agricultural raw materials, which showed low prices although historically high; this is to say, they are low with respect to the last years but they keep being high if we observe the historical fluctuation of the prices. These prices, still high, will continue to sustain, partly, Latin America’s growth.

¿What caused this decrease in prices? One possible cause is that United States, after many years of failed harvest, had a good harvest year.

As the economist explains, Uruguay’s ideal groth rate is 4%. This year, the groth was lower, but the country should recover the level by 2016. Why didn’t the country grow as expected? One of the reasons was the delay in the start of Montes del Plata. For now, this is not a problem, because Uruguay is still receiving foreign financing and has a high level of reserves.

The good news for Uruguay, according to Sorensen, is that it is less exposed to a desacceleration than Brazil and Argentina. Of course the activity in those two countries affects Uruguay, but its main partner is China. After the great financial crisis in 2002, Uruguay changed its financial matrix and is no more totally dependent on its neighbors. Our country is less exposed to an increase in the Argentinian risk. That known expression that a crisis in Argentina would inevitably cause a crisis in Uruguay, is not true anymore.

Uruguay has reordered its economy and has recovered the investment grade. More internal jobs have been created, a reduction in the public debt has been done, as well as a prudent management of the external debt, and the reserves stock is very high. Uruguay’s economy has a healthy balance, and the research did not identify any correlation with Argentina’s situation. On the other hand, the Argentinian bonds and stocks owned by Uruguayan financers practically don’t exist.

There are two areas in which Argentina con influence Uruguay the most. Firstly, tourism, because Argentinian tourism represents 1.9% of Uruguay’s GDP. Secondly, investment. The Argentinian investment reperesents 36.5% of the total foreign investment in Uruguay, that is, the 2% of the GDP. Moreover, almost 40% of agro investments and those in real estate come from Argentina.

According to BBVA’s research, there is no reason to expect an overvaluation of the properties’ prices for Montevideo’s average. There is not a Real estate bubble in Uruguay. Properties’ prices grow accompanying the population’s GDP. The financial perspectives for Uruguay are very positive for the next years.