Uruguay

Softening economic momentum in 2026

In 2026, GDP growth is expected to slow further. Weak activity in Q4 2025 left a small negative statistical carry-over into 2026 (-0.1%). Household consumption—accounting for 63% of GDP in 2025—should remain the main driver of growth, although at a more moderate pace. Easing credit conditions (the central bank has cut the policy rate by 575 basis points since April 2023, bringing it to 5.75% in April 2026) and a favorable labour market support consumption. However, inflation is expected to gradually reaccelerate over the year from very low levels in early 2026, largely due to higher energy prices linked to the conflict in the Middle East. The uncertain duration of geopolitical tensions raises the risk of second-round effects on inflation, which could prompt the central bank to tighten policy, reversing its current expansionary stance (the neutral real interest rate is estimated at 2.5% by the central bank). Investment (16% of GDP) has been weak in recent years, edging up by just 0.3% in 2025, following the completion of major infrastructure projects in 2023-2024, including the second UPM pulp mill and the Central Railway. In 2026—the first full year of the Orsi administration—investment should improve somewhat, supported by the low base of comparison, although prospects are weighed down by a more uncertain external environment and lower expected profitability in the agricultural sector. Public and multilateral initiatives may provide support: in November 2025, the IDB approved a USD 675 million road improvement programme, followed in December by a USD 500 million conditional credit line to modernise Montevideo’s metropolitan transport. In April 2026, the government also announced a USD 2.6 billion infrastructure plan for 2025-2029, including around 50 tenders, with 40% expected to be launched in 2026-2027. The strategy relies on private investment, concessions, and PPP arrangements. In addition, HIF Global's USD 5.3 billion green hydrogen and e-fuels project in Paysandú have construction planned to start in H2 2026 and completion expected in 2029. Meanwhile, public expenditure (17% of GDP) is expected to grow at a pace similar to that of 2025, as the government maintains supportive social spending while postponing fiscal consolidation.

Export growth is projected to slow, reflecting weaker global demand, including Brazil, China and the US. In the latter market, the average import tariff on Uruguayan goods reached 12.2% in March 2026. Regarding the export basket, agricultural commodities and agribusiness account for around 70% of Uruguay’s exports. While strong external demand and high prices should support meat exports, their positive contribution to overall export performance this year is likely to be partly offset by weaker grain exports, as yields are expected to decline due to dry conditions in late 2025 and early 2026.

Looking ahead, climatic conditions will likely shift as El Niño is expected to return in the second half of 2026. In Uruguay, the phenomenon is typically associated with above-average rainfall, which—if timely and not excessive—could benefit the 2026-2027 grain harvest. Higher rainfall would also support electricity generation as hydropower accounts for around 55% of the energy mix. Last, the real appreciation of the Argentine peso so far this year should boost tourism inflows.

Moderate widening of the twin deficits

The current account deficit is expected to widen moderately, driven by a narrowing trade surplus (around 3% of GDP). Import expansion is projected to outpace export, reflecting the country’s status as a net energy importer, with an energy deficit equivalent to approximately 1.8% of GDP. As a result, trade balance will be affected by the sharp rise in international energy prices following the escalation of the conflict in the Middle East. As for services surplus (1.7% of GDP), it is expected to remain broadly stable. The surplus in services such as ICT, software development and business process outsourcing should remain resilient, while the travel balance will benefit from increased tourism inflows. However, the transport deficit is likely to widen due to higher freight costs. Last, the large primary income deficit (-5.2% of GDP) is projected to improve slightly, supported by lower dividend repatriation from foreign investors amid softer domestic activity. Overall, despite a somewhat larger external deficit, financing conditions should remain favourable, with foreign direct investment continuing to play a key role. In addition, the country maintains a solid external buffer, with foreign exchange reserves reaching USD 19.1 billion in May 2026—equivalent to more than 17 months of import coverage. External debt stood at 57.5% of GDP at the end of 2025, of which 57% is public and 43% private. Uruguay also has a negative net international investment position (?22.1% of GDP as at Q4 2025). However, related risks are mitigated by the composition of external liabilities, as a significant share consists of foreign direct investment (net FDI liabilities amount to USD 31.75 billion, or 37% of GDP), reducing the likelihood of sudden capital outflows.

The 2025-2029 budget unveiled in August 2025 projected the fiscal deficit-to-GDP ratio to remain broadly stable in 2026, with fiscal consolidation deferred to 2027. However, the deficit is still expected to widen somewhat in 2026, despite the introduction of new tax measures. These include a domestic minimum tax for multinationals aligned with the OECD global minimum, taxation of foreign capital gains, and an extension of VAT to small courier imports. This expected deterioration reflects weaker revenue dynamics, as tax collection is likely to be damped by softer domestic activity. The budget is notably based on a relatively optimistic GDP growth assumption of 2.2% for 2026, which overstates the revenue outlook. At the same time, rising mandatory expenditures such as social security spending are expected to keep total public spending growing faster than revenues. On the financing side, Uruguay continues to benefit from favourable conditions. The country enjoys some of the lowest borrowing costs in Latin America and maintains a long debt maturity profile, with an average maturity of around 11.9 years in 2025. This helps reduce refinancing risks and overall vulnerability. In addition, the share of public debt denominated in local currency has remained broadly stable over the past decade, at around 56% in 2025. Public debt is also largely held by residents (53%, compared to 47% by non-residents), and is predominantly composed of bonds (88%) and multilateral and other creditors (12%).

Orsi administration to make changes to the pension system and favours multilateralism on the external front

Yamandú Orsi of the Frente Amplio coalition (FA – left) took office on 1 March 2025 for a five-year term after winning the presidential election runoff in November 2024. His victory marked the return to power of the FA, which ruled the country for 15 years before President Lacalle Pou (2020 – 2025) from the Partido Nacional (PN – centre-right). The FA coalition holds a majority in the Senate, with 16 of the 30 seats (the PN has nine seats). However, its representation is smaller in the Lower House (48 out of 99 seats, versus the PN’s 29 seats), which forces the government to negotiate with the other parties to pass reforms. In addition, the government is composed of a diverse ideological coalition, which makes it harder to build consensus. The Movimiento de Participación Popular, the main force within the governing coalition, tends to adopt a more pragmatic approach, while the Socialist Party and the Communist Party represent more left-leaning positions. As a result, one year into Orsi’s administration, no major reforms have been passed. A key issue on the current political agenda is the pension system, which has returned to debate after voters rejected, in a 2024 referendum backed by trade unions, a proposal to nationalise the pension system. The current system is based on a mixed model, combining the public social security agency (BPS) with private pension funds (known as AFAPs), which manage more than USD 25 billion for around 1.7 million people. The governing party had campaigned on reforming the social security system during the 2024 presidential election. In the previous year during the Lacalle Pou administration, lawmakers had passed a law to progressively raise the minimum retirement age to 65. On 28 April 2026, the executive branch presented the final report of the Social Dialogue, an eight?month white paper that brought together political, social and academic actors to compile proposals that will serve as the basis for future reforms of the social protection and security system. One of the main areas of consensus reached in the process is the prioritisation of policies targeting children and adolescents. In the pension area, structural changes—such as eliminating the AFAPs (pension savings fund administrators) or nationalising pension funds—were ruled out. At the same time, the government announced its intention to create a new early retirement option allowing individuals to retire from the age of 60, while maintaining the legal retirement age at 65. This option would be particularly aimed at lower-income workers, ensuring minimum pension levels through solidarity-based support mechanisms. Most of the proposals will require legislative approval, meaning the government will now move to draft bills and begin political negotiations in the legislative.

Regarding foreign trade, Uruguay is a member of Mercosur and President Orsi supports strengthening the bloc, including expanding access to new markets. A key development is the EU–Mercosur trade agreement, which entered into force on 1 May, 2026, on a provisional basis, as final approval by the European Parliament is still pending following referral to the European Court of Justice in January 2026. Under the deal, Mercosur will gradually eliminate trade barriers on around 90% of tariff lines over 15 years. In return, the EU will liberalise a similar share of imports and reduce tariffs on agricultural goods in quotas that will be expanded over the next five years. The agreement also addresses non-tariff barriers by promoting measures such as simplified and harmonised customs procedures. Uruguay currently exports approximately USD 1.2 billion in goods to the EU, mainly products such as pulp, beef, rice, wood, and wool. Key destinations include the Netherlands—acting as a logistical hub—along with Italy, Germany, and Spain. Moreover, foreign direct investment is another central pillar of the relationship. The EU accounts for roughly 46% of Uruguay’s total FDI stock, equivalent to about USD 17 billion, particularly in pulp, financial and insurance services, agriculture, and real estate activities. Although the agreement does not include a dedicated investment chapter, it is expected to act as a catalyst for further investment flows. As part of the government´s broader multilateral strategy, Uruguay has also strengthened ties with China. In February 2026, Orsi conducted a state visit to the Asian giant to deepen bilateral relations and expand market access. The visit culminated in the signing of more than ten cooperation agreements in areas such as trade, science and technology. Despite these closer ties with China, Uruguay has sought to avoid tensions with the US. In April 2026, the Minister of Economy and Finance Gabriel Oddone travelled to Washington to participate in the IMF and World Bank spring meetings. During the visit, he also met with officials from the Office of the US Trade Representative Office to discuss bilateral relations. According to the minister, several US companies are currently evaluating Uruguay as a potential location for artificial intelligence projects.

2023

2025

Croissance PIB (%)

3.3

Last updated: May 2026