Ceres Economic Outlook

The six keys to understanding what is coming in 2023

The Center for the Study of Economic and Social Reality (Ceres) published this Thursday in a document its economic prospects for 2023 and presented six keys to knowing what will happen. The publication was launched this Wednesday at an exclusive dinner for members at the Golf Club facilities.

exchange market

First of all, what is going to happen to the dollar is mentioned. They say that it is “complicated” to anticipate the value of the dollar because it depends mainly on external factors and the international context has “enormous uncertainty”, associated with the speed of the reduction of inflation in the United States.

“To the extent that inflation is persistent and therefore US interest rates continue to rise, it is expected that the dollar will strengthen internationally, so it would have to rise in Uruguay, but if inflation decelerates month by month, rates may stop rising or even fall and thereby reduce the value of the dollar globally. The truth is that no one in the world knows what is going to happen,” Ceres details, while adding that in Uruguay the dollar is “too low” due to an exchange rate delay that is “bad for the productive sector.”

However, the study center understands that the government should not be asked to “do things that it cannot do.” “Many dollars have entered the country in the last year between exports, investments, and tourism, which reduces the market value of the dollar. It is possible to discuss if there could be a greater intervention of the Central Bank in the exchange market. But for this, we must bear in mind that, in Uruguay, inflation and the dollar go hand in hand, and with salary negotiations in the middle of the year, it is not advisable to have inflation rise ”, he indicates.

tax break

The second point has to do with the government’s tax reduction and whether it is indeed correct. In this sense, Ceres “agrees” with the tax changes “for reasons of form and substance” since it considers “very important for the confidence of democracy” that electoral commitments are met, and understands that the government’s announcement goes in that line.

Likewise, the tax cut is something that Ceres has been insisting on, even before the electoral campaign is done. Therefore, the reduction of personal income tax and IASS will have an impact on future consumption in the sectors involved, but the loss in collection “cannot be measured with a napkin calculation.”

“There are indirect effects that must be considered and that will increase the collection of other taxes. Now, if the concern is fiscal sustainability, this tax package must be analyzed in conjunction with the social security reform”, he points out.

Social Security Reform

The third item has to do with the social security reform that is in Parliament and in Ceres’ opinion it is a good transformation that “solves a specific problem that must be solved.” The agency acknowledges that “all the country’s problems or the problem of income distribution” are not solved, but emphasizes that it does not believe that all problems should be solved at the same time.

“An important part of Uruguay’s fiscal deficit is due to spending on social security, because personal and employer contributions are not enough to pay for retirement. And there is no room to increase contributions because they are already at quite high values ​​in international comparison ”, he assures.

“It is proposed that the retirement age gradually rise with the increase in life expectancy and incentives are proposed so that it is profitable to continue working. The reform manages to stabilize the current fiscal deficit of the system over time, which without reform is growing and unsustainable over time ”, he adds.

Education, curricular transformation and what will happen to it is the fourth key to 2023, but for Ceres the government’s decision to make the modification is not enough, rather there must be the commitment of teachers to achieve the profound changes that are proposed .

For Ceres, “there is no doubt” that the proposal is “good”, that the country “needs it”, but that the “party” is at stake in the “process”: “We have experience of good educational reforms that were practically reversed by teachers. You have to be very careful, this reform is necessary and urgent, it has to be well established in the system. There is no room for going back: it would be a collective suicide for the future of the country, ”he explains.

international insertion

The penultimate (and fifth) issue is international insertion, which, according to Ceres, can be improved, but “not going down a path that has no exit”, and raises the possibility of advancing trade agreements with North America and Europe.

“With Mexico we have an FTA that can be used more. We have a deep commercial relationship with the US in terms of software and associated services; that the only roof it has to grow is our ability to execute them. Canada joined the recent economic cooperation agreement that the US launched with nearby countries in the region and that is Uruguay, and it is also important, ”she indicates.

“With Europe, there is a latent hope that the agreement of the entire Mercosur will materialize, within the framework of a commercial relationship with a perspective that changed very positively with the war events. And, in addition, you can take advantage of the excellent country brand that Uruguay has today. Everywhere,” he adds.

Outlook 2023

Finally, the sixth point has to do with the prospects for 2023, economically speaking. For Ceres, the year starts with lights and shadows since the drought is being “fierce”, with high costs for agriculture that are difficult to calculate, despite this, the tourist season was “much better” than expected.

It highlights that 2022 closed with average GDP growth of more than 5%, but the genuine growth of the year (from January to December) was 2% and stresses that the records for 2023 are “similar”.

“Let us remember that prior to the fall and rebound of the pandemic, the economy had been stagnating for 5 years. After growing at record rates between 2004 and 2014, the engine died. In order for it to catch on and to be able to grow in a sustained manner (and more than 2%), it is essential to process the reform agenda, which includes the reform of social security and the educational transformation, but which cannot forget to update labor regulations. , improve the efficiency of the State (including public companies) and improve the international insertion of the country”, sentence.

Finally, he affirms that the future of the country is at stake there, in a party that “transcends the times of this government.” (Montevideo Portal)