Macroeconomic Forecast Paraguay

According to recent government projections, real GDP will grow by 4.1% in 2006 and 5.0% in 2007. For 2008, President Nicanor Duarte even expects that growth will exceed 8.0%. The government's positive projections are mainly based on increasing growth of soybeans and beef exports over the coming two years. Our estimates are slightly more conservation, and we forecast real GDP growth of 3.5%, 3.8% and 3.4% in 2006, 2007 and 2008, respectively. This is mainly due to the fact that we remain concerned about the country's high headline consumer price inflation (CPI), which increased by 12.5% y-o-y in December 2006 (up from 9.9% in 2005). Furthermore, in our view, the country's monthly economic activity indicator (IMAEP) currently does not support growth rates as high as those provided by the government.

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