Uruguay: GDP grows at softest pace since Q1 2021 in Q3 2022
GDP growth waned to 3.7% year on year in the third quarter from 7.9% in the second quarter. Q3’s reading marked the worst reading since Q1 2021.
Household spending increased 7.0% in the third quarter, above the second quarter’s 6.4% expansion, due to stronger nominal wage growth offsetting slightly higher inflation. Government spending dropped at the sharpest pace since Q4 2021, contracting 3.5% (Q2: +4.7% yoy). Fixed investment growth fell to 10.1% in Q3, from Q2’s 13.4% expansion. Despite the downtick, investment remained healthy thanks to a stronger construction sector.
Exports of goods and services growth accelerated to 18.9% in Q3 (Q2: +15.3% yoy), boosted by higher soybean sales. In addition, imports of goods and services growth picked up to 18.8% in Q3 (Q2: +12.5% yoy).
On a seasonally adjusted quarter-on-quarter basis, GDP dropped 0.1% in Q3, contrasting the previous quarter’s 1.4% increase. Q3’s reading marked the first contraction since Q1 2021, which indicates that underlying momentum worsened.
Looking ahead, domestic activity is set to suffer from tighter financing conditions. However, the ongoing hiking cycle led to lower inflation in October and November and is likely to keep price pressures at bay in the coming months. Externally, global economic headwinds will constrain Uruguay’s key food exports. In this regard, key factors to watch include negotiations regarding accession to the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and bilateral talks with China. Crucially, the evolution of these developments will impact trade relationships with Mercosur partners.
Analysts at the EIU commented on the outlook:
“Despite the slowdown, growth will remain well above the pre-pandemic average. Political stability, together with an improvement in the business environment as a result of pro-market reforms, will lead to firm investment-led growth that will translate to improved labor market outcomes.”