Uruguay’s Economic Recovery in 2024 and Projections for 2025 Slowdown

Uruguay’s economy grew by 3.1% in 2024 after recovering from drought impacts. The growth was spurred by strong agricultural and energy sectors, but forecasts for 2025 predict slower growth of 2-2.5%. Economists emphasize the need for effective policies to boost investment and consumption to drive future growth.

In 2024, Uruguay’s economy showed a notable recovery, expanding by 3.1% following severe drought conditions in the previous year, as indicated by the Central Bank of Uruguay (BCU). However, economic forecasts for 2025 suggest a return to the country’s historically slower growth rates, potentially around 2% to 2.5%.

The final quarter of 2024 witnessed a year-on-year GDP increase of 3.5% and a 0.3% rise in seasonally adjusted terms from the prior quarter. This growth was predominantly attributed to improved agricultural yields, robust hydropower generation, increased trade activity, and elevated pulp production, although these gains were tempered by a decline in the construction sector due to the completion of a major railway project.

Economists caution that while recovery indicators are positive, they do not indicate a dramatic transformation in economic momentum. José Antonio Licandro, an economist, described the situation as, “These are good numbers, but Uruguay is not taking off—it’s recovering.” Looking forward, growth in 2025 is anticipated to remain solid but restrained, as Uruguay adheres to its historical growth pace.

The strongest contributors to this rebound included significant expansions in the agriculture and energy sectors, reporting growth rates of 11.3% and 19.6%, respectively. Demand growth was primarily driven by a notable rise in exports, which increased by 8.3%.

Analysts express concern regarding underwhelming household consumption and diminishing investment trends. Marcelo Sibille of KPMG noted that household consumption saw only modest growth, while fixed investment declined despite some recovery in the latter half of 2024.

The BCU’s revisions of prior GDP figures also reflect adjustments, with 2023’s GDP growth revised from 0.4% to 0.7% and 2022’s from 4.7% down to 4.5%. Economists emphasize the significance of domestic consumption and investment in driving future growth, especially amidst potentially unfavorable external conditions. According to Sibille, “The challenge now is to create conditions for faster income growth,” advocating for policies aimed at enhancing investment and productivity.

Policy decisions regarding interest rates, wage negotiations, and national budget considerations will play a crucial role in shaping Uruguay’s economic pathways. With a per capita GDP around $23,500 and an estimated total GDP of $81 billion, Uruguay continues to perform admirably compared to regional standards; however, questions linger about overcoming historically modest growth ceilings.

Uruguay’s economy rebounded in 2024, marked by a 3.1% growth driven by improved agricultural conditions and energy production. However, forecasts for 2025 indicate a slowdown in growth rates back to historical averages of 2% to 2.5%, attributed to moderated household consumption and investment declines. Emphasis on policy decisions will be essential in steering the economy towards sustained growth while addressing investment and productivity challenges.

Original Source: en.mercopress.com