In sun and shadow

Uruguay experienced a period of high economic growth from 2004 to 2014 (+5.4% on average). Its economy held up better than the regional average during the pandemic, and it returned to past levels of growth in 2021 (+5.3%) and 2022 (+4.9%), thanks to strong exports in agricultural commodities. 2023 was marked by the most severe drought in 40 years – which hit the whole Southern Cone – leading to subdued exports, a decrease of -4.4% in manufacturing production and eventually lower growth (+0.8%). The country also suffered directly from the economic crisis in Argentina, and from the slowdown of the whole region, as tourism revenue from neighboring countries constitutes a non-negligible part of its economic structure. Nevertheless, Uruguay has a healthy economy, with the highest per capita income in the region, stable FDI inflows and a balanced democratic system. Economic growth recovered in 2024, driven by strong agricultural production and exports. Real salaries and employment rebounded alongside.

For 2025, GDP growth is expected at a healthy +3% amid weaker economic momentum in Brazil and exchange rate pressures that may stoke inflation. The ongoing economic recovery in Argentina is a partial offset, with positive spillovers for tourism and goods exports. Inflation, which reached its lowest annual levels since 2005 in early 2024, is forecasted to climb by late 2025 as the central bank returned to a hawkish stance in December 2024 to address inflationary pressures.

Uruguay’s ongoing challenge of dollarization limits monetary policy flexibility. With over half of its loans and 70% of deposits in USD, currency shifts impact both pricing and consumption. Nonetheless, the government’s commitment to maintaining fiscal stability and President-elect Yamandú Orsi’s balanced fiscal priorities aim to support long-term resilience.

Uruguay remains one of Latin America’s most stable democracies, underscored by the recent elections. The Frente Amplio’s Senate majority supports governability, but the lack of a lower-house majority presents potential hurdles in implementing reforms. Orsi’s administration plans to pivot foreign policy toward strengthening Mercosur ties, moving away from pursuing trade deals outside the bloc. This contrasts with previous administrations’ focus on global diversification. Growing organized crime, particularly drug trafficking exacerbated by porous borders with Brazil and Uruguay’s port infrastructure, poses a rising threat to national security and the business environment.

Uruguay’s business environment is very strong: the country ranks 27th out of 177 in the 2024 Index of Economic Freedom, and 4th in the Americas. Its best scores are obtained in property rights, judicial effectiveness and business freedom, and the country enjoys labor competitiveness. Uruguay has little corruption (16th in the CPI 2023), and foreign investments do not need preliminary approval. Trade freedom is also well assessed as the trade-weighted average tariff rate is 9.4%. The only bad score Uruguay obtains is in financial freedom as the government maintains a strong presence in the financial sector. The 2022 Worldwide Governance Indicators survey ranks Uruguay 19th out of 209 countries in control of corruption, and in the first quartile for regulatory quality and rule of law. All indicators have improved compared to 2021. Moreover, our proprietary Environmental Sustainability survey indicates that the country performs quite well in CO2 emissions and renewable electricity output. On the other hand, the recycling rate is poor and water stresses have had a significant impact on growth.

Uruguay’s commitment to democratic values, low corruption and business-friendly policies continue to attract investment. However, balancing moderate and radical factions within the Frente Amplio will test Orsi’s political acumen. Uruguay’s enduring strengths – regional diplomacy, fiscal prudence and robust institutions – provide a solid foundation for navigating these challenges while charting a sustainable path forward.