Uruguay flag Uruguay: Economic and Political Overview

The economic context of Uruguay

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Uruguayan economy is significantly dependent on its neighbours, Brazil and Argentina. In 2021, GDP increased by an estimated 3.1%, mainly due to a rise in household spending and fixed investment, and well as an increase in exports of goods and services paired with a decrease of imports of goods and services. However, it should be noted that the pandemic had relatively little impact on the Uruguayan economy when compared to other countries in the region, which is why the country experienced a more modest economic recovery than its neighbours in 2021. Still, the economy is expected to recover in the coming years, with the IMF predicting growth of 3.2% for 2022 and 2.7% for 2023.

In 2021, inflation remained slightly above the target of 7%, reaching an estimated 7.5%. However, that rate should decrease in 2022 and 2023, to 6.1% and 5.4%, respectively. Public debt is at 67.5% of GDP, but it's expected to increase to 68.8% in 2022 and 70% in 2023. The fiscal deficit slightly decreased to 3.7% in 2021, and it should continue that downward trend in the coming years, reaching 3.2% in 2022 and 2.5% in 2023. Furthermore, the current account went into an estimated 1.3% deficit in 2021, but that rate is expected to decrease to 0.3% in 2022 and remain stable at 0.2% in 2023. The economy has diversified in the past few years with the development of the industry sector (particularly the paper industry), as well as commerce and services. The government's fiscal policies are focused on restoring business profitability as a way to encourage investment and foster economic growth. Its priorities include reducing the large fiscal deficit  through a programme involving austerity and rationalisation of public spending (particularly through a better management of state-owned companies), while maintaining benefits for the most vulnerable sectors. Other key elements are the commitment to open trade, the reform of labour relations, and regulatory and management changes in public enterprises. In 2021, the government continued implementing measures to counteract the economic crisis resulting from the pandemic, which included  the expansion of heath spending, relaxation of rules for claiming unemployment insurance, expanded assistance to the most vulnerable groups, and reduction of some tax and pension obligations. Overall, Uruguay's fiscal measures implemented to mitigate the impacts of the pandemic have been effective in boosting economic activity, which has been gradually recovering. Looking ahead, recovery should continue, albeit at a slower pace, due to the fading impact of a low base effect, tighter monetary policy and heightened inflationary pressures.



Uruguay has one of the highest levels of GDP per capita in South America and a developing middle class. The country has had strong political and social stability for years, backed by a consolidated democracy and strong legal security, which makes it attractive to investors. Furthermore, the population living below the poverty line has decreased significantly in the past decade, from 40% in 2004 to 6.2% in 2016, due to a solid social contract and economic openness. However, there is still room for improvement in terms of financial transparency. The unemployment rate remained stable at 10.4% in 2021, as the country recovered from the impacts of the pandemic. However, unemployment is expected to decrease in the coming years, reaching 9.2% in 2022 and 8.7% in 2023.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 61.93e56.5860.1163.7465.86
GDP (Constant Prices, Annual % Change) 0.4-5.9e3.13.22.7
GDP per Capita (USD) 17,601e16,023e16,96517,93118,466
General Government Balance (in % of GDP) -3.4-4.0e-3.7-3.2-2.5
General Government Gross Debt (in % of GDP) 60.568.167.568.870.0
Inflation Rate (%) 7.99.8e7.56.15.4
Unemployment Rate (% of the Labour Force) 8.910.410.49.28.7
Current Account (billions USD) 0.83-0.38-0.78-0.17-0.14
Current Account (in % of GDP) 1.3-0.7-1.3-0.3-0.2

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Uruguay’s natural resources are very limited, mainly due to country's size. There is a significant mining industry in the country, which mainly revolves around basalt, dolomite, limestone, quartz, granite and marble. There is only one gold-producing mine in Uruguay, and the country is a major producer of cement and semi-precious stones, particularly agate and amethyst. Even though only around 10% of the land is arable, agriculture is the largest export sector in Uruguay. It accounts for 7.4% of the GDP and employs 8.4% of the active population. Uruguay has rich agricultural land and almost 90% of it is devoted to livestock breeding (cattle, sheep, horses and pigs). Rice is the main crop, followed by wheat, maize, sugar cane, soybeans, and tobacco. Vegetable and fruit farming are also present throughout the country, as well as a prominent wine industry along the coast of the Rio de la Plata. Even though the Uruguayan economy was hit hard by the COVID-19 pandemic, the agricultural sector was the least affected. Still, the Uruguayan agriculture managed to recover in 2021, mainly due to the resilience of external demand and the high prices of agricultural commodities.

The industrial sector contributes to 17.9% of the country's GDP and employs 18.8% of the active population. Agriculture and animal food processing account for half of the industrial activity. Other manufacturing activities include beverages (especially wine), textiles, construction materials, chemicals, oil and coal. Additionally, Uruguay has recently invested heavily in the paper industry, which is expanding. Industrial activity in Uruguay registered a steady recovery in 2021, largely due to stronger growth in food and beverage manufacturing, as well as petroleum refining, signalling an improving trend in the industrial sector as a whole.

The services sector contributes to 63% of the GDP and employs 72.7% of the active population, mainly in finance and tourism. Particularly, the region around Punta del Este attracts a large number of visitors, which has driven the rise in building, leading to a construction boom in the area in recent years. Although the services sector was hit the hardest during the pandemic, it showed a steady recovery in 2021 as vaccination rates rose and people's mobility increased. The growth in the sector was mainly driven by commerce, transport, accommodation and food service activities, and an increase in tourism.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 8.4 18.8 72.8
Value Added (in % of GDP) 7.5 18.0 63.0
Value Added (Annual % Change) -0.3 -4.9 -6.7

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
69,3/100
World Rank:
44
Regional Rank:
4

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: April 2022

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