Uruguay's Economy Will Struggle With Unemployment And Inflation, But It Will Grow 4 Percent In 2014

Uruguay has earned its right to be called The Netherlands of Latin America. With an uber-liberal government, progressive social laws and a stable economy, the small country sits in its Atlantic corner without making much noise -- but when it rumbles, the whole continent feels it.

In 2013 alone, Uruguay made headlines for repealing an attempt to penalize abortion and making marijuana legal and affordable to all in an effort to end the abuses of the black market. What news organizations missed, though, was a robust GDP growth of 4 percent last year, according to the International Monetary Fund’s estimates (up from a previous estimate of 3.8 percent in May).

According to analysts, the economy will continue on this path in 2014. The IMF predicted growth will reach about 3.5 percent, signaling 12^th year in a row in which the economy hasn't fallen into recession.

The Central Bank of Montevideo was even more optimistic, predicting the country’s economy will grow 4.1 percent in the new year.

The IMF pointed at inflation as Uruguay’s highest risk. Even though it stabilized in December 2013 at 8.5 percent, it is still high over the Central Bank’s target range of 4 and 6 percent. FocusEconomics, on its LatinFocus Consensus forecast, expects inflation to moderate this year by the slightly better rate of 7.9 percent, and decrease by 7 percent in 2015.

Unemployment has been on the rise as well, though a Trading Economics analyst said the numbers are low in the country’s historical context. The rate rose to 6.4 percent in December from 6.1 percent in September. However, in the new year, unemployment is expected to fall to 6.2 percent, and dip to 6 percent in 2015.

As far as Uruguay’s successful beef industry is concerned, exports amounted to 1.46 billion in 2012 -- 35 percent of total exports and 6 percent of the country’s GDP.

However, ever since marijuana became legal in the summer of 2013, several governments from abroad, including Canada, Chile and Israel, have expressed interest in importing Uruguay's weed, currently grown and controlled by the government. Although Montevideo has mentioned that the focus is on developing the domestic market, marijuana might be the next big industry to come out of the country.