Uruguay: Economy records meagre growth in Q3
December 15, 2015
Against a backdrop of falling export prices, high inflation and decreasing government revenues, the Uruguayan economy managed to barely avoid recession by growing a modest 0.6% on an annual basis in Q3 2015. The increase contrasted the 0.3% contraction recorded in Q2 although it was still well below the historical average and, excluding Q2’s deterioration, it marked the smallest expansion since Q2 2003. The upturn was the result of a sharp improvement in the contribution from the external sector, which offset a contraction in domestic consumption.
Consumer expenditure was likely impacted by high levels of imported inflation, causing prices to increase more rapidly than wages. Inflation averaged 9.2% in Q3, up from Q1’s 8.4% and Q2’s 7.7%, and contributed to falling real wages, which has impacted private consumption. Private consumption fell 1.0% in Q3 (Q2: -1.2% year-on-year). Government consumption deteriorated in Q3, although it was still expansionary and increased 1.8%, which was down from 2.2% in Q2 and marked the lowest figure since Q3 2006. Altogether, total consumption fell 0.7% in Q3, which was broadly in line with Q2’s decline of 0.8%. Fixed investment recorded the sharpest deterioration across GDP components, falling 14.3% (Q2: -6.1% yoy).
Thanks to a sharp contraction in imports (Q3: -13.2% yoy, Q2: -3.4% yoy), which outpaced the fall in exports (Q3: -6.0% yoy, Q2: -0.9% yoy), the external sector recorded a sharp improvement in its contribution to growth. Lower sales of wheat, soy beans and rice were behind the decline in exports, while lower energy prices helped to suppress the total values of imports. The external sector’s contribution to growth jumped from 3.7 percentage points in Q2 to 11.7 percentage points in Q3, marking the strongest contribution since June 2009.
A quarter-on-quarter comparison confirms the modest recovery as evidenced in the annual growth figures. The economy grew 1.0% in Q3 over the previous quarter in seasonally-adjusted terms, which was mainly due to the low base recorded in Q2 when the economy suffered a 1.5% quarterly contraction. Q3’s growth marked the strongest expansion since Q4 2013.
Author: Robert Hill, Economist