Economic growth decelerates in Q2

GDP growth cools in Q2: As expected, economic growth cooled to 2.1% on a year-on-year basis in Q2, down from the 3.6% increase in the previous quarter. This marked the fifth straight period of GDP growth, though the weakest in the sequence, underscoring waning momentum. On a seasonally adjusted quarter-on-quarter basis, the economy grew 0.4% in Q2, down from a 0.7% expansion in the prior quarter.

Fixed investment and exports drag on GDP growth: Compared to the prior quarter, Q2 saw weaker government consumption year on year (-0.5% vs +4.3% in Q1), fixed investment (-1.5% vs +4.2% in Q1), exports of goods and services (+0.5% vs +3.8% in Q1) and imports of goods and services (+0.7% vs +4.9% in Q1). In contrast, private consumption improved in Q2 (+2.3% vs +2.0% in Q1). Private consumption likely benefitted from a lower unemployment rate and softer inflation during the quarter. Meanwhile, fixed investment was seemingly dragged down by the Central Bank’s rate hikes earlier this year, and the absence of fresh major infrastructure initiatives after the April 2024 completion of the Ferrocarril Central railway, which links the new UPM pulp mill with Montevideo’s port.

2025 GDP growth to ease from last year: Economic growth is expected to lose further steam in H2 compared to H1 and undershoot the pre-Covid decade average of 2.9% due to higher trade frictions. In 2025 as a whole, our panelists expect GDP growth to moderate compared to 2024: The fading boost from last year’s post-drought rebound in agricultural output and rising U.S. protectionism are likely to weigh on exports. Nonetheless, stronger domestic demand should provide some support. Household consumption is expected to strengthen, underpinned by a tighter labor market and expanded social spending. Sluggish economic growth in major trade partners—especially Brazil and China—continues to pose a significant downside risk to the outlook.

Panelist insight: Commenting on the outlook, EIU analysts stated: “We expect the economy to remain weak in the third quarter, which partly reflects slower growth in Brazil and Argentina—major markets for Uruguayan exports. Another factor that will weigh on growth, especially investment, is the expectation of higher labour costs due to sector-level collective bargaining and an increase in taxes as the government seeks to finance higher social spending.”

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