Uruguay

Lower growth momentum in 2025

In 2025, GDP growth is expected to slow due to a high comparison base, given that activity recovered in 2024 from the drought caused by the strong La Niña in 2023 which affected the energy sector and agricultural output. Although this weather phenomenon was present again at the beginning of 2025, it was short-lived, and its side effects were much milder than two years ago. As a result, crop estimates for soybeans, corn, and rice suggest a good harvest in 2025 (as in 2024). Conversely, the key meat sector is going through a difficult time owing to several factors, including a crisis affecting the country's livestock investment companies and a significant decline in slaughtering. As for tourism, the recovery of activity in Argentina and the appreciation of the Argentine peso in real terms should increase the number of travellers to Uruguay, especially during the high summer season in the first quarter of 2025. On the demand side, household consumption (63% of GDP) should remain the main driver of activity but will expand at a slower pace amid higher average inflation and tighter credit conditions. The central bank has been raising interest rates since December 2024 (adding 75 basis points by April 2025, taking the rate to 9.25%). Meanwhile, investment (16% of GDP) should recover in 2025, sustained by a weak comparison base (-7% contraction in 2024), related to the completion of the Central Railway in 2023. However, the path to recovery will be cushioned by tighter financing conditions. That said, public consumption (16% of GDP) is also expected to lose momentum in 2025, before recovering again in 2026 when President Yamandú Orsi is likely to increase social spending during his first full year in office.

In addition, net exports should contribute negatively to growth in 2025. Important to note is that Uruguay's exports to the US are equivalent to 1.8% of GDP, which makes the country's vulnerability to the Trump administration's protectionist trade policy relatively low. In addition, the US imposed a relatively low base tariff on imports from Uruguay (10%) from 5 April, 2025. At a sectoral level, the bulk of sales to the US comprises beef (accounting for 61% of total exports to the country in 2024 and 26% of the industry’s total external sales), which was already subject to a quota of 20,000 tonnes (sales outside the quota were taxed at 26%). In 2024, Uruguay exported almost 100,000 tonnes of beef to the US. However, the country could be indirectly affected if escalating global trade tensions were to further curtail growth momentum in China and lower agriculture and forestry commodity prices. In addition, a more hawkish Federal Reserve could also be a bad omen for the South American country, since 50% of Uruguay's credit market is dollarised.

A slight widening of the external account and a temporary narrowing of the fiscal shortfall

The current account deficit should widen somewhat, due to a lower trade surplus. Exports should grow at a weaker pace than imports, owing to lower agriculture commodity prices (notably soybean) affecting foreign sale revenues (despite high volume) and demand constraints in the beef industry (although sales were still strong in early 2025). In addition, lower growth in main markets for exports, namely Brazil and China, and the challenging external backdrop impacting global trade also bode ill to exports. The primary income deficit should deteriorate, due to rising dividends repatriated by foreign investors associated with increasing output in the UPM pulp mills. Conversely, the services surplus should widen, underpinned by a positive tourism balance, amid a higher number of visitors coming from Argentina. Foreign direct investments comfortably finance the current account deficit. Moreover, the country boasted strong foreign exchange reserves of USD 19 billion in February 2025 (covering 19 months of imports), which constitutes an important buffer to withstand any possible external shock. External debt represented 57% of GDP, of which 54% was public and 46% private. Last, the country holds a negative net international investment position, which was -17.8% of GDP in Q4 2024. However, risks are attenuated by the fact that most of the liabilities are FDIs (USD 29 billion or 36% of GDP), which curbs the risk of a sudden outflow.

The budget deficit is expected to narrow slightly in 2025. Tax revenue growth will be limited by the moderation in economic growth. Meanwhile, expenditure should grow at a relatively lower pace on back of the new government transition period. While the Orsi administration is likely to increase social spending during its mandate, initiatives should become more visible in 2026. The government has six months from taking office (March 2025) to present its budget for the next five years. Furthermore, Uruguay continues to benefit from the lowest borrowing costs in Latin America and has been able to extend the maturity of its debt in recent years (in 2024, 61% of the debt will mature in over 5 years, compared to 51% in 2014), thereby reducing its vulnerability. The share of public debt denominated in local currency remained quite stable during the last decade, standing at 56% in 2024. The debt is notably held by residents (55%, versus 45% of non-residents and is under the control of bondholders (82%) and multilateral creditors (13%).

The left returns to power

Yamandú Orsi of the Frente Amplio coalition (FA – left) took office on 1 March 2025 for a five-year term, after emerging the winner of the presidential election runoff held in November 2024. He secured 49.8% of the votes versus 45.9% by Álvaro Delgado of the previous ruling party, Partido Nacional (PN – centre-right). His victory marks the return to power of the FA, which ruled the country for 15 years before the term of President Lacalle Pou (2020 – 2025). Yamandú Orsi is a former history teacher and local mayor of Canelones. The FA coalition holds a majority in the Senate, with 16 of the 30 seats (the PN has nine seats). However, its representation is lower in the Chamber of Deputies (48 out of 99 seats, while the PN has 29 seats), which forces the government to negotiate with the other parties to pass reforms. Orsi has pledged to maintain the traditionally stable economic environment and advocated “a modern left” to tackle social challenges (such as homelessness, poverty and crime) while promoting growth. He endorses gradual fiscal consolidation, which he plans to achieve by reducing tax exemptions, and has spoken out against raising taxes, which he says would scare off investors. Instead, he plans to focus on attracting investment and improving labour skills to boost activity, which has remained sluggish over the last decade. In addition, a key priority should be combating the rise violence. Uruguay’s homicide rate has increased markedly in recent years (from 7.5 per 100,000 inhabitants in 2014 to 10.6 in 2024) and is fuelled by drug gangs expanding their activity across the country. The trend is one of the population's main concerns according to pollsters. To quell the rise, Orsi committed to increasing funding of the prison system and cooperating more closely with Europe in combatting drug-related crime. Another important topic concerns the pension system. During the first round of the October 2024 general elections, there was also an overwhelming response from voters concerning two matters: the pension system and amending the constitution to allow night-time police raids. Both referendum propositions were rejected, having failed to reach the 50% +1 required support. While the social security referendum rejection was welcomed by the market, as it could have compromised medium-term fiscal prospects, the new government should push for some changes. The rejected referendum would have re-established the retirement age from 65 to 60 years, brought the minimum pension in line with the minimum wage (at a fiscal cost of roughly 1.3% of GDP per year) and nationalised pension funds. Given union and left-wing internal pressures in the Frente Amplio coalition, Orsi will likely attempt to reverse some of Lacalle Pou's changes to the country’s social security measures (namely, lower the retirement age). However, with a divided Congress, the likelihood of passing potential sweeping expansionary fiscal reforms is limited.

Regarding foreign trade, Uruguay is a signatory of the Mercosur regional trade agreement, the members of which have seen faltering growth in recent years and which also prevents its members from entering into individual trade agreements. Former President Lacalle Lou tried to seal a deal with China but ran up against this barrier. On this front, Orsi, contrary to his predecessor, is in favour of strengthening Mercosur (including the conquest of new markets) and a trade policy that promotes the diversification of local economies (protection of national industry). Last, regarding the 25-year negotiations between Mercosur and the European Union, both sides announced in December 2024 the conclusion of negotiations of a free trade agreement to reduce export tariffs between the two blocs. This came five years after an initial deal which had been stalled notably due to environmental concerns on the part of the European Union about deforestation in Mercosur countries. The major changes to the 2019 text are the commitment to adhere to the Paris Climate Change Agreement (with possible suspension of benefits in the event of a breach), amendments to public procurement, auto trading and critical minerals exports. However, the agreement still needs to be signed, then ratified by the Parliaments of Mercosur member countries and on the European side. The European Commission's proposal, expected midway through 2025, will define the substantial legal bases that will determine whether the agreement will be submitted for ratification as a mixed agreement that – apart from provisions relating to the EU's exclusive trade competence (“EU-only” agreement) – contains provisions concerning competence(s) shared between the EU and its Member States. It is also conceivable that the agreement will be split into two agreements (one EU only, one mixed) that either: a) enter into force consecutively – the first one as an interim EU-only agreement, which then elapses once the final mixed agreement has been ratified by the EU Member States; or b) co-exist as legally separate agreements after their ratification. Unlike EU-only agreements, mixed agreements not only require Council ratification and European Parliament consent but also ratification by the EU Member States in accordance with their constitutional requirements. Last, during its ratification in Europe, the text is likely to meet with some objections, especially from France.

Last updated: April 2025