Uruguay's Fragile Recovery Clashes With Downward Growth Revisions for 2026

Uruguay is navigating a moment of economic ambiguity: the country has resumed growth after stumbling in 2025, but analysts are consolidating downward revisions for 2026 projections while the government maintains fiscal discipline with little room for additional spending.

The Central Bank reported that the economy expanded 0.8% in the first quarter of 2026 versus the previous quarter, and 0.9% year-on-year, according to multiple sources citing the same BCU data. The advance —driven by private consumption and exports— breaks the technical contraction of late 2025, when activity shrank 0.2% in the third quarter of that year. Yet the signs of recovery are fragile: agriculture retreated on the back of falling soybean and rice output, construction also contracted, and March activity —which jumped 2.2% month-on-month according to private data cited by Ambito— is not enough to dispel the sense of an economy operating below its potential. The Ceres Leading Index, which anticipates the economic cycle, posted a 0.3% rise in May, accumulating two consecutive months of growth, although the same indicator had pulled back earlier in the year. Forecasters have consolidated cuts to their 2026 GDP projections, in line with the warning from Economy Minister Gabriel Oddone himself, who acknowledged to La Diaria that there is "a fairly high probability that we will revise the projected growth for 2026 downward."

Against this backdrop of deceleration, the government is approaching the Rendición de Cuentas with a stance that Minister Oddone defended at the Council of Ministers in unambiguous terms: there will be no expansion of spending beyond what is foreseen in the 2027 Budget. According to El Observador, the Executive plans to finance additional spending by reallocating resources that various state agencies left unused in 2025, rather than resorting to new debt or tax hikes. The government is also moving to incorporate the global minimum tax on multinationals into the budget law, with estimated revenue of $350 million, according to La Diaria. The combination of fiscal discipline and creative financing reflects the constraint that Oddone himself recognized from the moment he took office: "The fiscal situation is more restrictive than any of us imagined."

The counterpart to that austerity shows up in the sovereign debt market, where Uruguay is reaping tangible benefits. The country risk premium hit its lowest level since 2018 and market operators anticipate further declines, according to El Observador. The MEF placed peso-denominated debt at a rate below 7%, attracting more than twice the expected demand, a sign of investor appetite that contrasts with the diagnosis on growth. The dollar, meanwhile, is navigating a global landscape of uncertainty: the US Federal Reserve held rates steady and reinforced its cautious tone, complicating exchange rate forecasts for a country where dollar-denominated competitiveness remains a central concern for the agricultural sector.

On the labor market front, the data offer one of the few unqualified bright spots. According to El Observador, both employment and real private wages are growing above the pace of economic activity, an anomaly that suggests partial productivity gains but may also reflect lags in labor market adjustment. Consultancy Cifra, however, warned that public perception of the economic situation "has been deteriorating," a divergence between formal indicators and household sentiment that the government will need to address.

On the microeconomic policy front, the government has introduced a competitiveness bill aimed at reducing red tape and taxes on foreign trade, and is moving forward with a review of the exclusive importers regime, a measure that could lower prices in certain market segments. At the same time, internal tensions persist: the Environment and Industry ministries are clashing with Economy over the tax treatment of electric vehicles, a dispute that illustrates the difficulty of reconciling the green agenda with fiscal constraints.

The coming weeks will set the pace for the budget debate in Parliament, where the opposition has already begun pressing on several fronts, and the market will be watching whether Oddone delivers on his pledge to contain spending in the year of greatest political exposure in the cycle. The release of fresh activity data for April and May, together with the evolution of the exchange rate in a context of global caution, will determine whether the first-quarter rebound consolidates into a trend or whether Uruguay faces another half-year of growth too weak to meet the expectations with which the Frente Amplio came to power.