Uruguay: Economy contracts for first time in over three years in Q1
The economy shrank 0.2% year-on-year in the first quarter, contrasting the fourth quarter’s 0.6% expansion and marking the first contraction since the 2015 recession. Meanwhile, in quarter-on-quarter, seasonally-adjusted terms, GDP remained stagnant in Q1, following Q4’s marginal contraction (Q1: +0.0% quarter-on-quarter; Q4: -0.2% qoq).
On the domestic front, household consumption continued to decline in the first quarter (Q1: -0.4% year-on-year; Q4: -0.5% yoy), amid lower wage growth, rising unemployment and a weaker peso. In a similar fashion, fixed investment contracted again at the outset of 2019 (Q1: -3.2% yoy; Q4: -3.8% yoy), against the backdrop of slumping private investment activity which more than offset a jump in public investment. Lastly, government consumption growth more than halved in Q1 (Q1: +0.7% yoy; Q4: +1.5% yoy) although remained in positive territory as the authorities continue to attempt to stimulate the economy.
Externally, exports of goods and services fell 6.0% yoy in Q1, deteriorating further from Q4’s 4.9% drop and marking the fifth consecutive quarter of contraction. Feeble external demand drove the result, particularly from Brazil and Argentina, the country’s key trading partners. In particular, Uruguay’s all-important tourism sector was hit hard by the ongoing crisis in Argentina. Imports, meanwhile, continued to contract substantially (Q1: -7.9% yoy; Q4: -8.0% yoy), reflecting frail consumer demand.
Looking ahead, strong headwinds to growth will continue to batter the economy this year: A weak external environment amid downturns in Argentina and Brazil will dent the external sector’s performance, while stagnant real wages, a weaker peso and still-high unemployment will curb household spending growth.