The economy of Brazil could grow this year more than projected by the financial market, according to the Bank of America. This, in turn, would mean impacts on the economy of Uruguay, not only because of its geographical proximity, but also because of the close commercial relationship that unites both countries.
The Brazilian economy could grow up to 2.7% of Gross Domestic Product (GDP) this year, according to the estimates of the head of economic analysis for Brazil and Latin America from Bank of America, David Becker; despite the fact that official projections point to a 2.05% improvement.
In an interview with the newspaper Folha de Sao Paulo, the economist assured that “for several quarters the market has been surprised by the rise,” and that the prospects for greater growth are supported by a unemployment very low and a recovery of wages with less inflation, on the one hand; and the credit cycle, on the other.
Although the analysis is still pending regarding the impact of the catastrophic floods that the south suffered Brazil —where, in some places, the water has not yet receded—, which puts “a downside risk” in the estimate; Beker maintained that the monthly data for May, yet to be published, “will show something,” so it can be “calibrated a little better.”
“In any case, one of our main theses is that growth this year is more uniform growth, with an important component of consumption”, he concluded.
More growth in Brazil, more growth in Uruguay?
Beyond the political and ideological divergences that may exist between governments, the importance of Brazil For the Uruguayan economy it is undeniable: it is the main destination of exports locals for several months, surpassing China and establishing itself in that first position with the passage of time.
In that sense, vehicles, barley malt and dairy products are the main products purchased in the northern country. In fact, Uruguay is the main supplier of milk powder Brazil, a staple product in most homes. Therefore, an improvement in the economy like the one Beker foresees, along with wages, employment and consumption, is also good news for local producers who trade across the border.
At a more general level there are also benefits to the Brazilian economy growing: as the largest partner in the Mercosur, The improvement can also mean a boost to the bloc and, in this, projects with the countries that make up it, Uruguay including. In this regard, the president Luiz Inácio Lula da Silva announced at the end of April the creation of an interministerial commission for integration works in South Americawith a budget of up to 3,000 million dollars from the development bank BNDES and 10 billion dollars from multilateral and development banks.
It is worth remembering that the country is already working on joint projects with its northern neighbor, such as the Laguna Merín Waterwayfundamental for border trade and key for the development of the northern Uruguayan departments.
In any case, attention will be focused in the short term on what balance will be made from the floods, an issue that already affects the local economy with lower exports, especially to the southern area of Brazil.
Consumption, inflation and dollar
The growth of the Brazilian economy, supported mostly by consumption, can also generate impacts on Uruguay, beyond bilateral trade.
It is known that, like the movements of the dollar in USA have a direct impact on the local price, what happens with the real It also affects the Uruguayan exchange market. This, to the point that, on several occasions, the behavior of the dollar in relation to the peso did not follow US guidelines but, rather, was coupled to regional movements.
In this sense, an increase in consumption in Brazil can lead to greater pressure on prices, in a context in which the Central Bank of that country—like monetary authorities around the world—works strongly with the monetary politics to reduce the post-pandemic inflation. Therefore, it would be expected that interest rates remain relatively stable, without major cuts, and that, therefore, the real remains strong in relation to the dollar.
In the Uruguayan exchange market, consequently, this would be a additional incidence factor downward to the local price; even more pronounced in case the Booking Federal (Fed) of the United States finally moves forward with some cut in rates, which are at their highest historical range.
Source: Ambito
