Uruguay: Full-year growth slumps to 17-year low as economy cools at year-end
March 20, 2020
The economy grew just 0.2% year-on-year in the final quarter of 2019, after expanding 1.1% in the third quarter. Meanwhile, in quarter-on-quarter, seasonally-adjusted terms, GDP contracted 0.6% in Q4, contrasting Q3’s 0.6% expansion and marking the worst result since Q4 2015. The fourth quarter’s result brings full-year growth for 2019 to 0.2%, well below 2018’s 1.6% expansion and marking the softest reading since 2002.
A weaker external sector chiefly drove the slowdown in the fourth quarter. Growth in exports of goods and services slumped in Q4 (Q4: +1.6% year-on-year; Q3: +6.1% yoy), dragged down by a contraction in exports of services, prompted by a decline in the tourism sector owing to spillovers from a frail Argentine economy. Meanwhile, imports of goods and services accelerated in Q4 (Q4: +3.0% yoy; Q3: +1.3% yoy), on stronger purchases of final consumption and capital goods, as well as of tourism services in Argentina. Overall, the external sector subtracted 0.4 percentage points to growth in Q4, a notable downturn from Q3’s 1.3 percentage-points contribution.
Meanwhile, domestic demand improved somewhat, on the back of improved investment activity. Fixed investment growth gained significant steam (Q4: +5.4% yoy; Q3: +2.6% yoy), led by stronger private sector fixed investment—especially in machinery and equipment—as well as by a softer contraction in public sector investment, which nevertheless saw infrastructure spending falling again. On the other hand, private consumption cooled in the fourth quarter (Q4: +1.0% yoy; Q3: +1.4% yoy), most likely due to continued slack in the labor market, still-high inflation and a falling peso. Lastly, public spending growth broadly kept pace in Q4 (Q4: +0.6% yoy; Q3: +0.7% yoy).
This year, the economy is expected to gain some strength, benefiting from recovering domestic demand. Fixed investment is set to bounce back, supported by an improved business environment, higher infrastructure spending and the construction of a new paper pulp plant. The continued contraction of Argentina’s economy and coronavirus spillovers cloud the outlook, however.