Uruguay's Growth Stalls: Austerity and Competitivity as Last Resort

Uruguay enters 2026 with the handbrake on: market consensus points to GDP growth below potential, the government defends its fiscal discipline without concessions, and structural competitiveness remains the wound that no Rendición de Cuentas manages to close.

The Uruguayan economy ended 2025 with expansion of 1.8%, well below the 2.6% projected by the Banco Central and the IMF's own estimates, according to La Diaria. The final quarter of the year averted a technical recession—the third quarter had registered a contraction of 0.2%—but the rebound was too weak to provide momentum heading into the following year. The first quarter of 2026 posted growth of 0.9%, driven by finance, services and commerce, although agriculture and construction continued to lag, hit by drought and falling soy and rice prices. The World Bank cut its projections for Uruguay to 1.6% in 2026 and 1.7% in 2027, labeling the country a "superstar" that has lost ground. Private analysts, according to El Observador, keep trimming their estimates.

Against this backdrop, Economy Minister Gabriel Oddone has not budged from his core stance: fiscal policy will remain the anchor of the model. At the Cabinet meeting on the Rendición de Cuentas, Oddone was categorical in stating that there will be no expansion of spending beyond what is contemplated in the 2027 Budget. The Rendición de Cuentas includes additional spending, but it will be executed with funds left unused by public agencies in 2025, not with new resources. The opposition, which has begun negotiating the bill with the government, faces a request for one billion dollars that Oddone says he can justify without altering the balance of public accounts. The Consejo Fiscal Asesor had flagged worrying breaches in 2024 public finances, and 2024 closed with a deficit similar to that of 2019, accompanied by an increase in public debt of more than ten percentage points of GDP, according to La Diaria.

In parallel, the government is pushing forward with its most far-reaching reformist bet: a competitiveness bill containing more than 240 measures, ranging from fintech regulation to lowering the cost of living, including adjustments to the Imesi on fuels along the border with Argentina, where the price gap threatens local retailers. The Executive also formally submitted the bill under the name Ley de Competitividad y Reducción del Costo de Vida. Ignacio Munyo, of the Centro de Estudios para el Desarrollo, put it bluntly: "Competitiveness is the great problem Uruguay must resolve." Most companies, according to a survey reported by El Observador, project stability in 2026 but still single out competitiveness as their main concern.

Oddone has also been explicit about the country's geopolitical positioning. In remarks reproduced by several outlets, the minister stated that, in its economic management, Uruguay is "closer to Europe than to the United States," alluding to its model of institutional governance and, in particular, to the Mercosur-European Union agreement, which he describes as a strategic opportunity with a high probability of moving forward. The minister also revealed that his government faces daily pressure from Washington to scale back commercial ties with China, pressure that Oddone has publicly resisted.

In financial markets, the most positive signal of the day comes from country risk: according to El Observador, the indicator stands at its lowest level since 2018, and the market expects it could fall further. The Fed left rates unchanged, reinforcing caution about the dollar in Uruguay. The peso continues its gradual pesification process, encouraged by the BCU, although the cumulative currency appreciation remains a source of alarm for exporters. The Cifra survey warns that public perception of the economic situation "has been deteriorating," a data point the government cannot ignore as employment and real private wages grow faster than activity itself—a paradox that reflects market segmentation more than any broad-based boom. The Ceres Leading Index posted two months of mild growth through May, although earlier readings of the indicator had reinforced signs of softening.

The coming months will determine whether Oddone's bet on austerity and microeconomic reforms can translate into productive dynamism. The parliamentary debate over the Rendición de Cuentas, the evolution of the exchange rate against an uncertain external backdrop—with the conflict in the Middle East as a new variable—and the pace at which competitiveness measures are implemented will be the gauges to watch. The Banco Central will also need to calibrate its signals on inflation and growth in a context where external projections remain more pessimistic than official ones.