Uruguay – strong institutions and resilience to shocks
With real GDP growth of 3.0% expected, the Uruguayan economy will surpass its pre-crisis levels in 2022. Government policies implemented in the fourth quarter of 2021, including the reopening of borders, the elimination of value-added tax (VAT) for tourists and loans to boost the tourism sector – which accounted for 17.4% of Uruguay’s GDP in 2019 – will support growth this year.
While Latin America has been the region hardest hit by the pandemic, the prioritization of vaccination rollout has resulted in 77.3% of Uruguayans now being fully vaccinated. This should support private consumption growth of 3.6% in 2022. Demand for automobiles and electronics, in particular, should be strong, providing growth opportunities in these sectors.
Besides tourism, Uruguay’s other main sector is food, including agricultural and meat production. Exports from these sectors are expected to increase significantly this year barring unfavorable weather conditions, and producers are benefiting from higher food prices.
To meet this growth, Atradius expects the demand for machinery to support agricultural activities to be high. Uruguay’s vast agricultural sector, however, is vulnerable to adverse weather conditions, as climate change increases the risk of drought in the region. In response, the authorities are increasingly investing in the renewable energy sector and the country is becoming a major exporter of renewable energy, particularly wind power, to the region.
Uruguay is also facing rising prices, but the country has strong resilience to shocks. Inflation, at 8.0%, exceeded the upper limit of the central bank’s current target range of 3% to 7% and is expected to remain above this throughout the year. The central bank is raising interest rates accordingly and the tightening cycle could be faster than expected, depending on US monetary tightening, to avoid depreciation of the peso and capital. Atradius expects this to remain an orderly process in 2022 thanks to strong institutional quality and a considerable level of international reserves.
Uruguay is one of the strongest democracies in the world, with a stable political and business environment, which underpins its solid outlook.