MPIA-12268 Assessing the impact of the global financial and economic crisis in developing countries: The case of Uruguay

Abstract

For the past five years, after the strong 2002 recession, the Uruguayan economy has shown a strong recovery, averaging 6.7% growth rate for real gross domestic product (GDP). However, during the first quarter of 2009 GDP showed the first decrease in six years (-2.9%). Although GDP immediately recovered during the second quarter of 2009, there was a substantial slowdown of GDP growth rate for 2009 (Figure 1). After the deepening of the crisis, macroeconomic forecasts of GDP, prices and manufacturing growth in Argentina and Brazil were significantly revised downwards. To the extent that Uruguayan economic growth is very closely linked to that of the two main partners (Argentina and Brazil), downward revisions in forecasts of these economies implied similar reductions in forecasts for the country’s economic growth, and in particular for the manufacturing sector, where there is a strong trade link with the MERCOSUR area. Indeed, the manufacturing sector experienced a decline of 3.8% in 2009, after six years of impressive growth, averaging 13%.As a consequence of the reversal of the economic cycle, in the first months of 2009 government revenues have shown a shortfall and the fiscal deficit has significantly expanded. While government projections before the beginning of the crisis situated the fiscal deficit in -0.4% of GDP for 2009, the fiscal deficit finally reached 2.1% of GDP The declining growth has potential negative implications for incomes, employment and investment. This study uses a computable general equilibrium (CGE) model to analyze the impact of the financial and economic crisis in Uruguay and alternative policy options. Up to now we have worked in discussing and defining the relevant scenarios and estimating the shocks to the model (crisis and policy respond shocks); and in introducing unemployment and calibrating the model. We are now working on running the simulations. This draft mainly intends to present our discussions and definitions of data and simulations, and does not present results yet. This second draft is divided into the following sections. Section 2 describes the channels of transmission of the global crisis in Uruguay. Section 3 presents some possible crisis scenarios for Uruguay. Section 4 describes possible simulations of policy responses to the crisis. Section 5 briefly describes the model and data set, and the simulations carried out. Section 6 presents some first results and section 7 concludes.

Members

Project leader: Cecilia Llambí

Project researchers: Carmen Estrades

Journal publication

Authors	Co-Authors	Title of paper	Title of Economic Review	Bibliographic references
Cecilia Llambí	Carmen Estrades	Assessing the impact of global financial and economic crisis in developing countries: the case of Uruguay	Monitoring and Mitigating the Impact on Poverty of the Global Financial and Economic Crisis	De La Salle University, 2013, 418p

Working Papers

	Title	Modified	Size	Comments	Recommendations
	Assessing the impact of the global financial and economic crisis in developing countries: The case of Uruguay	2011-10-05	1016.88KB	0	0

Policy Briefs

No policy briefs.

Final report

	Title	Modified	Size	Comments	Recommendations
	Assessing the impact of the global financial and economic crisis in developing countries: the case of Uruguay	2010-12-08	238.63KB	0	0

Proposal

	Title	Modified	Size	Comments	Recommendations
	Assessing the impact of the global financial and economic crisis in developing countries: The case of Uruguay	2009-08-01	119.5KB	0	0