Uruguay: Economy rebounds mildly in Q2, although headwinds to growth remain
The economy rose a meagre 0.1% year-on-year in the second quarter, contrasting the first quarter’s revised 0.3% dip (previously reported: -0.2% year-on-year), which had marked the first contraction since the 2015 recession. Meanwhile, in quarter-on-quarter, seasonally-adjusted terms, GDP rose 0.3% in Q2, following Q1’s revised 0.1% contraction (previously reported: +0.0% quarter-on-quarter, seasonally-adjusted).
The second-quarter upturn was chiefly driven by the external sector’s improved performance. Exports of goods and services rebounded solidly in Q2 following Q1’s notable contraction (Q2: +3.5% yoy; Q1: -5.8% yoy), marking the first increase since Q1 2018 and pointing to an improved regional backdrop. Meanwhile, imports of goods and services fell in Q2, although at a much softer pace than in the previous quarter (Q2: -0.3% yoy; Q1: -4.1% yoy).
On the domestic front, conditions remained challenging. Fixed investment contracted again and at the sharpest rate in over a year (Q2: -4.1% yoy; Q1: -1.8% yoy), chiefly led by slumping public sector investment activity, thus weighing on overall domestic demand. On top of that, private consumption dipped again in the second quarter, albeit just marginally (Q2: -0.1% yoy; Q1: -0.4% yoy) amid soaring unemployment, still-high inflation and a falling peso. Lastly, public spending growth slumped to an over one-year low in the quarter (Q2: +0.4% yoy; Q1: +1.2% yoy) as the government shrank its spending plans despite looming elections scheduled in October.
Looking ahead, the picture remains gloomy for the reminder of the year. A still-weak regional environment will likely dent the external sector’s performance, while stagnant real wages, a weakening peso and rising unemployment will weigh on consumer demand. Against this backdrop, the country is gearing up for a presidential election on 27 October, with early polls suggesting a tightly contested race between the Broad Front Party’s Daniel Martínez and the National Party’s Luis Lacalle Pou. While there are risks stemming from uncertainty surrounding the outcome of the election, growth is expected to rebound next year as political stability settles in and the regional backdrop perks up.