Uruguay Economic Growth (GDP, ann. var. %)

Economic Growth in Uruguay

Economy records sharpest contraction since Q1 2021 in the final quarter of 2022

GDP dropped 0.1% year on year in the fourth quarter, contrasting the 3.4% expansion seen in the third quarter. Q4’s reading marked the worst result since Q1 2021.

The downturn was driven by weakening private consumption, fixed investment and exports. Private consumption increased 4.5% in the final quarter, which was below the third quarter’s 7.3% expansion, as inflation remained stubbornly high. Government consumption dropped at a slower pace of 0.2% in Q4 (Q3: -3.0% yoy). Meanwhile, fixed investment growth fell to 3.9% in Q4 (Q3: +9.0% yoy).

Exports of goods and services worsened, contracting 5.6% in Q4 (Q3: +13.6% yoy). In addition, imports of goods and services growth waned to 3.7% in Q4 (Q3: +16.8% yoy), marking the worst reading since Q1 2021.

Turning to GDP by industry, the downturn in the agricultural sector intensified markedly due to a severe drought related to the La Niña phenomenon. Moreover, the industrial and services sectors also deteriorated.

On a seasonally adjusted quarter-on-quarter basis, GDP dropped 1.3% in Q4 from the previous quarter’s 0.7% fall. Q4’s reading marked the sharpest downturn since the outbreak of the Covid-19 pandemic in Q2 2020.

The outturn brought overall growth for 2022 to 4.9%, down from 2021’s post-pandemic rebound of 5.3%.

Turning to the current year, annual economic growth is set to roughly halve. Domestic activity will suffer from tighter financing conditions and still-elevated inflation. In addition, the ongoing drought will hamper the agricultural sector, while the global economic slowdown will dent Uruguay’s exports. On the flip side, income and pension tax cuts will provide some support to private spending. Key factors to watch include the evolution of the drought, negotiations regarding accession to the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and bilateral trade talks with China.