The economy of Uruguay in 2024 will be marked by an improvement in the private consumption and a trend towards greater balance in terms of prices with Argentina, two closely related issues that were among the greatest obstacles to growth and fiscal balance during 2023.
The consultant CPA Ferrere carried out an analysis for its clients on what to expect economically during the election year and, without any big surprises, Argentina was one of the central points in updating the economic perspectives. This, given that the exchange difference with the neighboring country was one of the big problems of last year, which led to a price gap important, in the consumption diversion internally to the other side of the border and in impacts to commerce and employment, especially in the coastal area.
In that sense, the partner of the firm Alfredo Capurro —in charge of the service Economic Analysis and Forecasts and, furthermore, a member of the Fiscal Advisory Council (CFA) of the Ministry of Economy and Finance (MEF)— maintained that “2024 will be a good year for the Uruguayan economy, especially a good year for private consumption.”
According to the analysis, among the factors of this growth in consumption will be improvements related to employment and real wages, further supported by a “strong increase in wages in dollars”—from a deepening of the exchange rate misalignment regarding its foundations. But in this scenario it will also be key that “the flight of consumption towards Argentina will be reversed because the price gap has closed.”
“This is an important difference compared to 2023, it is a positive shock for the Uruguayan economy that arrives a semester earlier than expected,” considered CPA Ferrere’s forecast and noted that “this implies that this good year for consumption should also be reflected in the coastal departments, in border businesses and in other service activities that in 2023 were harmed by the flight of demand towards Argentina”.
“The spending of Uruguayans on Argentina Last year it was 1,250 million dollars, almost 600 million dollars more than in 2022. We estimate that those 600 million dollars of excess spending would return to the Uruguayan economy this year,” Capurro added in this regard.
Argentina is going through difficulties but the balance is positive for Uruguay
Along the same lines as CPA partner Ferrere pointed out Nicolas Cichevski, manager Economic analysis of the firm: “The most relevant novelty for Uruguay is the improvement of Argentina, “which arrives a semester earlier than expected,” he said while listing the international factors that local businessmen and investors should look at during the year.
“Argentina goes through a severe macroeconomic adjustmentwith abrupt fiscal adjustment, recession and high inflation, which also implied a price correction that were outside their equilibrium relationships, such as the official dollar, fuels and energy,” he said in the analysis for clients as an explanation for the reduction in the price gap, as well as the exchange difference — which can be simplified into the high inflation and the significant devaluation experienced in the neighboring country.
As an example, Cichevski pointed out that in September 2023 the naphtha on the border in Uruguay It was worth 3 times more than in Argentina, but today that difference is barely 10%. “Argentina is no longer so attractive for the shopping tourismyes,” he noted.
“The scenario is fragile and uncertain, due to the political challenges involved in reaching an agreement on structural reforms and because there is still no known Stabilization Plan credible and consistent, but in any case what is relevant to Uruguay is that the adjustment of relative prices came a semester earlier than we expected and that is positive news for Uruguay in 2024”, concluded the manager.
Source: Ambito
