Uruguay: Economy bounces back in Q1
Economic growth rebounded in the first quarter, with GDP increasing 1.2% on an annual basis (Q4 2022: -0.1% year on year).
Household spending growth fell to 2.6% in Q1, marking the weakest expansion since Q1 2021 (Q4 2022: +4.5% yoy). Government consumption slid at a quicker rate of 2.6% in Q1 (Q4 2022: -0.2% yoy). Meanwhile, fixed investment growth slowed to 2.3% in Q1 from the 3.9% expansion logged in the prior quarter.
Exports of goods and services rebounded, growing 14.0% year on year in the first quarter, which marked the best reading since Q2 2022 (Q4 2022: -5.6% yoy). In addition, imports of goods and services growth picked up to 12.1% in Q1 (Q4 2022: +3.7% yoy).
Turning to GDP by industry, the downturn in agricultural production softened, but the sector remained in the doldrums as the drought stemming from the La Niña weather phenomenon persisted. Meanwhile, manufacturing output bounced back marginally, and construction activity growth accelerated. Looking at services, trade and accommodation grew slower, while financial services picked up pace.
On a seasonally adjusted quarter-on-quarter basis, GDP also rebounded, increasing 0.9% in Q1, contrasting the previous quarter’s 1.3% contraction. Q1’s reading marked the end of a technical recession.
Available data paints a dark picture for Q2: In April, industrial production shrank, while merchandise exports plummeted. Moreover, the drought has intensified in recent months, creating concerns about basic water access and likely denting agricultural output further. Accordingly, our panelists expect the economy to contract again.
Shifting to H2, the economy should return to growth amid more favorable weather conditions and lower interest rates. The arrival and strength of the El Niño weather pattern, negotiations regarding accession to the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and bilateral trade talks with China are key factors to monitor.
Analysts at the EIU commented on the agricultural sector outlook:
“Looking ahead, the El Niño weather phenomenon should bring the drought to an end in the second half of this year, boosting agricultural production in the 2023/24 harvest season.”