Uruguay Cuts Growth Outlook as Structural Reforms Race Against Slowdown

Uruguay is going through a slowdown that no longer admits euphemisms: the consensus among private analysts and multilateral institutions points to GDP growth coming in below earlier forecasts in 2026, consolidating a cycle of weak momentum that the Minister of Economy and Finance, Gabriel Oddone, openly acknowledged when he noted there is "a fairly high probability" of revising growth projections downward for the current year.

The starting point is relatively modest. The Uruguayan economy expanded 0.9% in the first quarter of 2026 from the previous quarter, with an annualized pace that, according to the Central Bank, reflects "greater dynamism" following the virtual stagnation seen at the close of 2025, when GDP advanced just 1.8% for the full year, well short of the 2.6% originally projected by the government. Finance, agriculture and mining drove last year's expansion, but industry and commerce lagged behind — a sectoral asymmetry that worries technical staff.

The Ceres Leading Index offers a mixed reading: it posted two consecutive months of growth through May with a 0.3% rise, although in prior months it had declined and reinforced signs of weakening. The World Bank trimmed its forecasts for Uruguay to 1.6% in 2026 and 1.7% in 2027, and the IMF maintains equally subdued projections. Several private analysts cut their estimates again, converging around 1% or even below.

In that context, Oddone vigorously defended the fiscal course. At the Cabinet meeting that approved the Rendición de Cuentas bill, the minister was categorical: there will be no expansion of spending beyond what is contemplated in the 2027 Budget. The Rendición de Cuentas envisages additional spending, but financed with funds that public agencies left unused in 2025, without incorporating new resources. At the same time, the government ruled out any tax increase during the period, narrowing policy options to spending efficiency and supply-side structural reforms.

That is precisely where Oddone's bet lies. The government is pushing a legislative package with more than 240 measures, ranging from fintech regulation to changes in competition policy — including a new fee, merger control and a leniency program against cartels — and microeconomic reforms aimed at improving competitiveness. Oddone, who has said that in managing the economy Uruguay is "closer to Europe than to the United States," is also moving forward with changes to the investment promotion regime and will introduce a bill to streamline procedures and ease specific tax burdens. The BCU, for its part, presented a preliminary draft to create an open finance system.

The financial signals are, paradoxically, the most encouraging. Country risk stands at its lowest level since 2018, and the market expects it could fall further. Inflation registered its lowest year-on-year reading in 70 years. Uruguay issued debt in Swiss francs for the first time, the MEF returned to the peso market placing more than double the planned amount at a rate below 7%, and Standard & Poor's lifted the country's investment-grade rating by two notches. The dollar, in any case, is generating tension: with the Federal Reserve holding rates and reinforcing its cautious stance, the exchange rate faces pressures that the agricultural sector continues to monitor uneasily, recalling recent episodes of appreciation that led the head of the Asociación Rural to warn that "we are at a breaking point."

On the labor front, the data offer some relief. According to El Observador, private employment and real wages are growing above the pace of activity, implying a degree of consumption resilience. However, household credit has fallen for seven consecutive months and delinquency is not easing, a combination that acts as an internal brake on growth. Public sentiment reflects that tension: consultancy Cifra warned that the economic climate "has been deteriorating," while more than half of Uruguayans rate the situation as "neither good nor bad," according to Equipos.

On the external front, Oddone highlighted the geopolitical role of the Mercosur-European Union agreement and stressed that "there is more chance of moving forward" in that process, while the government cautiously manages daily pressure from Washington to distance the country from China. On the industrial side, service exports from the Knowledge Economy posted record growth, and the technology sector continues to consolidate its weight in the productive structure.

What will define the tone of the second half is the speed at which the government's microeconomic reforms translate into private investment, the evolution of the exchange rate against a global backdrop of heightened monetary uncertainty, and the capacity of domestic credit to recover. The parliamentary debate on the Rendición de Cuentas and the competitiveness bill will be the most immediate political gauges of the economic team's real room for maneuver.