GDP per capita in Uruguay

Uruguay - GDP per capita (U.S. Dollars)

Economy contracts at sharpest rate in over 16 years in Q1 amid adverse external backdrop

The economy slumped 1.4% year-on-year in the first quarter of 2020, after expanding 0.2% in the fourth quarter of last year, recording the worst contraction since Q2 2003. Meanwhile, in quarter-on-quarter, seasonally-adjusted terms, GDP fell 1.6% in Q1, following Q4’s 0.6% contraction and marking the worst result since Q1 2014.

An abysmal external sector drove the downturn in the first quarter. Exports of goods and services slumped 5.8% in Q1 (Q4: +1.6% year-on-year), dragged down by a contraction in exports of services, as lockdown measures and Argentina’s troubled economic situation led to vanishing tourist arrivals in March. Meanwhile, imports of goods and services jumped (Q1: +9.2% yoy; Q4: +3.0% yoy), on much stronger outbound tourist flows. Overall, the external sector subtracted 4.1 percentage points to growth in Q1, after subtracting 0.5 percentage points in Q4.

Meanwhile, domestic demand improved, on the back of stronger investment activity and household spending. Private consumption firmed up in the first quarter (Q1: +1.7% yoy; Q4: +1.0% yoy), while government consumption ticked up 0.1% (Q4: +0.6% yoy). Fixed investment growth, meanwhile, lost significant steam (Q1: +0.2% yoy; Q4: +5.4% yoy), although gross capital formation including restocking soared on higher purchases of capital and intermediate goods.

GDP is set to fall this year as coronavirus and measures to contain its spread will weigh on the country’s main trading partners, depressing demand from abroad and investment activity domestically. Moreover, already frail fiscal metrics will deteriorate. A poor handling of the pandemic in the region poses the main downside risks.

Our panelists see GDP falling 3.7% in 2020, which is up 0.2 percentage points from last month’s forecast, and expanding 3.9% in 2021.