Uruguay: Economy records sharpest contraction since Q1 2021 in Q2
The economy contracted 2.5% on an annual basis in the second quarter, contrasting the first quarter’s 1.5% increase. Q2’s reading marked the worst reading since Q1 2021. On a seasonally-adjusted quarter-on-quarter basis, economic activity declined 1.4% in Q2, contrasting the previous period’s 1.3% increase. Q2’s reading marked the sharpest downturn since Q2 2020. The decline in the economy in the second quarter was to be expected, and was largely a result of the record drought, which weighed on agricultural and hydroelectric energy output. That said, declining inflation and unemployment and strong wage growth bolstered consumer spending.
Looking at expenditure components, household spending growth improved to 4.8% year-on-year in Q2 compared to a 3.6% expansion in Q1. Public spending bounced back, growing 0.7% in Q2 (Q1: -2.9% yoy). Fixed investment contracted 7.6% in Q2, marking the worst reading since Q2 2020 (Q1: +4.2% yoy). On the external front, exports of goods and services fell 6.3% on an annual basis in the second quarter, which contrasted the first quarter’s 13.7% expansion. In addition, imports of goods and services growth moderated to 7.5% in Q2 (Q1: +13.3% yoy).
Looking ahead, the economy should return to growth in annual and quarterly terms in Q3 as the impact of the drought eases and monetary policy loosens.
On the reading and outlook, EIU analysts said:
“We will revise down our projection for Uruguay’s 2023 GDP growth, from 1% currently, based on the sharper than expected decline in the second quarter. Nevertheless, we still expect the economy to recover as weather conditions normalise, leading to increased agricultural production and exports. Other factors that will support growth are rising real salaries (as disinflation boosts private consumption) and monetary easing by the BCU.”