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Uruguay GDP Q2 2020

Uruguay: GDP logs largest fall on record in Q2 on Covid-19 shock

GDP contracted 10.6% year-on-year in Q2, a sharper decline than the 1.4% drop logged in Q1 and marking the worst reading since current records began in 1998, as the Covid-19 pandemic battered the economy.

The downturn was broad-based, reflecting the impact of coronavirus containment measures on domestic activity. Household spending nosedived 13.8% on an annual basis in the second quarter, which contrasted the first quarter’s 1.2% expansion, amid a rising unemployment rate. Moreover, government expenditure plunged 12.0% in the same period, following Q1’s 1.8% decrease, while fixed investment fell 11.7% in the second quarter, contrasting the previous quarter’s 1.3% rise and marking the steepest contraction in over two years.

On the external front, exports of goods and services plummeted 16.8% on an annual basis in Q2, a steeper fall than Q1’s 5.8% contraction, largely owing to disrupted supply chains and feeble global demand. In addition, imports of goods and services dived 15.5% in Q2, contrasting the first quarter’s 8.6% expansion.

On a seasonally-adjusted quarter-on-quarter basis, GDP contracted 9.0% in Q2, notably down from the previous period’s 1.6% decline.

The economy is set to shrink this year as coronavirus-induced restrictions hammer consumer and capital spending, while disrupted supply chains and weak demand from main trading partners constrain exports. In 2021, GDP is seen rebounding as the global economy recovers from the pandemic. Weak fiscal metrics, which have deteriorated further due to the pandemic, and a second wave of infections pose downside risks to the outlook, however. Reflecting on the outlook for the Uruguayan economy, Louis Mullen, economist at Oxford Economics, noted:

“Despite intervention by the government and the central bank, the contraction in Q2 was much worse than expected due to business closures and a sharp rise in unemployment. Economic activity has shown signs of recovery since May as lockdown measures ease, real wages start to rise and a return to more normal conditions leads to a recovery in business activity and consumption growth. Our GDP forecast for 2020 has fallen to -4.2% (from -3.3% in August), before recovering to grow 5.3% in 2021.”

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