Uruguay growth outlook slows as IMF backs fiscal and reform agenda

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Uruguay growth outlook slows

Highlights

Uruguay's GDP growth slowed to 1.8 percent in 2025 due to drought, with a goods trade deficit in early 2026 but reserves covering 11.25 months of imports by August 2026.
Inflation remains within the central bank's tolerance range at 4.6 percent in August 2026, supporting a monetary easing cycle and keeping expectations anchored near the 4.5 percent target.
The IMF projects a 4.1 percent of GDP budget deficit in 2026 and endorses further labor, education, and productivity reforms to address downside risks and boost long-term growth.

IMF mission outlines 2026 policy priorities

As reported by the International Monetary Fund, staff concluding the 2026 Article IV mission says Uruguay remains resilient despite weaker growth, external price shocks and global uncertainty. The IMF says growth averaged 1.8 percent in 2025 after drought conditions affected agriculture from the third quarter of 2025, while the goods trade balance deteriorates in the first half of 2026 even though reserves remain ample at 11.25 months of imports at end-August 2026.

Inflation remains within the central bank’s tolerance range for nearly all of the past three years, supported by what the IMF describes as proactive monetary policy. After falling through 2025 and prompting a monetary easing cycle from July 2025, inflation stands at 4.6 percent in August 2026, with expectations still anchored around the 4.5 percent target.

The IMF says the government’s updated 2026 budget preserves the fiscal consolidation goals in the five-year budget law. It projects the central government deficit including social security at 4.1 percent of GDP in 2026, unchanged from the 2025 level when one-off pension revenues are excluded, and says the planned adjustment should improve the primary balance steadily through 2029.

The fund also supports a reactive monetary stance and says the exchange rate should continue acting as a shock absorber, with foreign-exchange intervention limited to disorderly market conditions. It adds that stronger legal central bank independence, deeper peso financing and further de-dollarization would improve policy transmission and reduce quasi-fiscal costs over time.

Reforms seen as key to longer-term growth

The IMF says risks to the outlook remain tilted to the downside, citing tighter global financial conditions, oil price shocks and weather-related threats including El Niño. At the same time, it says Uruguay’s renewable electricity base, favorable market access, investment-grade ratings and contained systemic financial risks help limit near-term vulnerabilities.

In the financial sector, the IMF says banks remain well capitalized, liquid and profitable, with capital ratios nearly twice regulatory minimums and non-performing loans staying low. Credit in pesos is growing at about 9 percent in real terms year over year as of August 2026, supported by lower interest rates, financial reforms and programs encouraging sustainable investment.

For longer-term growth, the IMF says Uruguay needs to lift labor supply, improve inclusion and raise productivity after average growth of only 1.2 percent since 2016. It highlights employment measures for vulnerable groups, the draft Competitiveness Law, irrigation plans, education spending and curriculum reforms as steps that could strengthen human capital, lower business costs and support stronger output over time.

In our earlier coverage of Moody’s analysis on persistent global inflation, we noted that prolonged price pressures were keeping investors cautious and pushing central banks toward tighter policy and higher interest rates. The piece also highlighted how these conditions raise uncertainty and borrowing costs, forcing companies and policymakers to adjust to a more volatile macroeconomic environment.

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