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Uruguay’s Economy Slowed More Than Forecast on Shut Refinery

Uruguay’s economic growth slowed more than analysts forecast in the fourth quarter as a refinery closure and the start of a drought trimmed a nine-year expansion in the South American country.

Uruguay’s gross domestic product expanded 3.5 percent in the fourth quarter from a year earlier, the central bank said on its website today. Analysts forecast the economy would grow 6.5 percent, according to the median estimate of six economists in a Bloomberg survey. GDP expanded 5.7 percent in 2011, down from a revised estimate of 8.9 percent in 2010.

The closing of Uruguay’s La Teja refinery for maintenance and a subsequent workers strike slowed growth from August until the facility re-started in January. A drought that started at the end of the year and rising import barriers in neighboring Argentina are hitting the $44 billion economy more than expected, said Pablo Moya, an economist at Montevideo-based Oikos Research Co.

“There was a stronger slowdown than forecast,” said Moya, who had forecast annual growth of 6.3 percent. “We will downgrade our growth forecast for 2012 to 4 percent or 4.5 percent from 4.7 percent.”

Industrial production, excluding the closed La Teja oil refinery, rose 1.3 percent in January from a year earlier, the national statistics agency reported March 13. With the refinery included, December output fell 12.6 percent from a year earlier.

Stronger Peso

A strengthening currency that policy makers are counting on to help fight inflation will also help slow growth this year, Barclays Capital said in a March 8 report. Consumer prices rose 7.9 percent in February from a year earlier, above the central bank’s 4 percent to 6 percent target range.

“The country’s main economic challenge continues to be inflation, despite the authorities’ willingness to reduce it,” the Barclays said.

The Uruguayan peso has gained 2 percent against the dollar this year, compared with a 2.6 percent gain for the Brazilian real and a 1.5 percent decline for the Argentine peso. A stronger currency may damp growth enough to bring inflation closer to target, Barclays said in its report.

Right Path

The economy “is on the desired path of deceleration,” central bank President Mario Bergara told reporters March 1 in the coastal town of Punta del Este. The economy may expand as much as 4.5 percent this year, he added.

Unemployment rose to 5.7 percent in January from a record low of 5.3 percent the previous month.

“Growth in 2012 will be fueled mostly by the dynamics of the domestic market, based on an overheated labor market with historically low unemployment rates and significant increases in real wages,” said Ramon Pampin, an economist at PricewaterhouseCoopers in Montevideo.

Policy makers will weigh the latest economic data at their quarterly meeting March 29, when they will decide whether to change the benchmark overnight lending rate. The rate was raised 75 basis points, or 0.75 percentage point, to 8.75 percent in December.

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