Uruguay: Growth accelerates on the back of stronger household spending and higher inventories
July 4, 2017
Uruguay’s economy accelerated further in the first quarter of 2017. In Q1 2017, GDP grew 4.3% from the same month last year, according to detailed data released by the Central Bank on 15 June. The reading came in above Q4’s 3.4% year-on-year expansion and marked the best result since Q4 2013. The improvement came on the back of a notable acceleration in private consumption growth and strong stock accumulation. This shows the economy has continued to improve after Q4’s acceleration which followed a sharp slowdown brought on largely as a result of recession in neighbors Brazil and Argentina.
Growth in Uruguay once more came on the back of strengthening domestic demand, while the external sector continued to contribute negatively to growth, albeit to a lesser extent. In particular, private consumption jumped 4.3% in Q1 in annual terms, strongly up from Q4’s 1.3% expansion. Households benefited from growing wages and declining inflation, while a strong tourist season further contributed to the acceleration in private consumption. On the other hand, fixed investment fell 1.1% in Q1, which represented a sharp downturn from Q4’s 10.7% surge. This can be explained by the temporary closure for maintenance of the La Teja refinery, which weighed heavily on the small Uruguayan economy and was reflected in a substantial drop in manufacturing output in the first quarter. Nevertheless, gross capital formation grew healthily, as stockpiles increased significantly. Government consumption lost steam, falling 0.6% in Q1 compared to a 1.4% expansion in Q4, a testament to the government’s efforts to cut spending and tame the budget deficit.
On the external front, export growth accelerated from Q4’s 3.6% to a stronger 4.9% in Q1 on the back of a strengthening tourist sector, which likely benefited from the improving economic situation in Brazil and Argentina. At the same time, import growth decelerated from 5.8% in Q4 to a more moderate 3.6% in Q1, due to lower consumer and capital goods imports, the latter dragged down by weaker fixed investment. As exports grew more than imports, the external sector’s net contribution to growth improved, although it remained negative overall.
On a quarter-on-quarter basis, the economy expanded 1.5% in Q1 in seasonally-adjusted terms, which came in slightly above the 1.4% expansion logged in Q4.