Uruguay flag Uruguay: Economic and Political Overview

The economic context of Uruguay

Economic Indicators

The Uruguayan economy is significantly dependent on its neighbors, Brazil and Argentina. The country showed strong resilience during the Covid-19 pandemic and returned to its pre-pandemic level by mid-2021. After growing by 4.9% in 2022, economic activity decelerated to an estimated 1% in 2023 amid tighter financial conditions and the impact of a historic drought that affected agricultural production. In 2024, GDP growth is expected to be bolstered by the resurgence of exports and private consumption. The IMF forecasts growth at 3.3% this year and 2.9% in 2025.

Uruguay undertook significant structural fiscal consolidation during the period of 2020-2022, guided by amendments to the fiscal rule implemented in 2020. In 2023, the fiscal environment has been challenging due to the drought's impact, the reversal of real wage declines in previous years, and the government's tax reduction measures. The IMF estimated that the central government deficit expanded to 2.9% of GDP in 2023, up from 2% one year earlier, but it should gradually decrease to 2.3% by 2025. In April 2023, Congress endorsed a pension reform that, despite featuring long transition rules, will not yield fiscal savings for several years. Nonetheless, this reform stands as a robust testament to fiscal responsibility and enhances the long-term sustainability of the system. General government debt increased to 61.6% of GDP at end-2023 and is expected to remain stable over the forecast horizon. The foreign-currency debt ratio has dropped below 50%, indicating the government's continuous commitment to de-dollarizing the debt structure through a focus on domestic financing sources. Nevertheless, the ratio remains elevated. According to the National Institute of Statistics, the accumulated inflation during the year 2023 totaled 5.11% (compared to 8.3% one year earlier), falling within the target range established by the Central Bank of Uruguay (BCU), which was set between 3% and 6%. The IMF forecasts inflation at 5.9% this year and 5.5% in 2025.

The unemployment rate increased to 8.1% in 2023, from 7.9% one year earlier, and should remain stable in the medium term (IMF). Uruguay has one of the highest levels of GDP per capita in South America and a developing middle class (USD 28,851 in 2022, as per the World Bank). The country has had strong political and social stability for years, backed by a consolidated democracy and strong legal security, which makes it attractive to investors. Furthermore, the population living below the poverty line has decreased significantly in the past decade: at present, the percentage of households residing in poverty stands at 6.4%, as measured by the international poverty line of USD 6.85 per capita per day (World Bank).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 70.1777.2482.6186.2990.11
GDP (Constant Prices, Annual % Change) 4.70.43.72.92.6
GDP per Capita (USD) 19,73721,65723,08824,04425,033
General Government Balance (in % of GDP) -2.0-2.4-2.6-2.3-2.1
General Government Gross Debt (in % of GDP) 60.360.361.962.262.3
Inflation Rate (%) 9.15.95.85.55.2
Unemployment Rate (% of the Labour Force) 7.98.38.18.08.0
Current Account (billions USD) -2.79-3.03-3.01-2.73-2.55
Current Account (in % of GDP) -4.0-3.9-3.6-3.2-2.8

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Uruguay’s natural resources are very limited, mainly due to the country's size. There is a significant mining industry in the country, which mainly revolves around basalt, dolomite, limestone, quartz, granite, and marble. There is only one gold-producing mine in Uruguay, and the country is a major producer of cement and semi-precious stones, particularly agate and amethyst. Even though only around 11.6% of the land is arable, agriculture is the largest export sector in Uruguay. It accounts for 7.3% of the GDP and employs 8% of the active population. Uruguay has rich agricultural land and almost 90% of it is devoted to livestock breeding (cattle, sheep, horses, and pigs). Rice is the main crop, followed by wheat, maize, sugar cane, soybeans, and tobacco. Vegetable and fruit farming are also present throughout the country, as well as a prominent wine industry along the coast of the Rio de la Plata. In 2023, Uruguay's main export product was once again beef, accounting for 18% of the total exports. Sales amounted to USD 2.08 billion, 19% less than in 2022 (official governmental data).

The industrial sector contributes to 17.6% of the country's GDP and employs 18% of the active population. Agriculture and animal food processing account for half of the industrial activity. Other manufacturing activities include beverages (especially wine), textiles, construction materials, chemicals, oil, and coal. Additionally, Uruguay has recently invested heavily in the paper industry, which is expanding. The manufacturing sector as a whole is estimated to account for 10% of GDP. Uruguay's manufacturing industry production increased on average by 0.6% throughout 2023 compared to the previous year, driven by the manufacturing of paper and food, as reported by the National Institute of Statistics (INE). The divisions with the highest negative impact on the annual average were "Petroleum Refinery," with a decrease of 30.9%, and "Manufacture of Motor Vehicles," with a decline of 16.8%, resulting in negative impacts of 1.8 and 0.6 percentage points, respectively.

The services sector contributes to 63.2% of the GDP and employs 74% of the active population, mainly in finance and tourism. Particularly, the region around Punta del Este attracts a large number of visitors, which has driven the rise in building, leading to a construction boom in the area in recent years. The country welcomed 3.83 million tourists in 2023, marking a 55.5% increase year-on-year (data Ministry of Tourism). The structure of Uruguay's financial system comprises two public banks, nine private banks, and a diverse array of non-banking institutions.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 8.4 18.9 72.6
Value Added (in % of GDP) 7.3 17.6 63.2
Value Added (Annual % Change) -2.9 1.8 6.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
69,3/100
World Rank:
44
Regional Rank:
4

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: May 2024

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