Uruguay growth slows as IMF backs fiscal path and sees 1.3% expansion in 2026

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Uruguay growth slows, IMF outlook

Highlights

IMF projects Uruguay GDP growth slowing to 1.8% in 2025 and 1.3% in 2026 amid refinery, cellulose plant shutdowns and drought, with recovery to 2.4% in 2027.
Government meets 2025 fiscal targets despite slower growth and remains on track for medium-term consolidation totaling 1.5% of GDP by 2029.
Unemployment stands at 7.2% in August 2026 near historic lows, inflation contained at 4.7% in September 2026, and sovereign spreads remain lowest in the region.

IMF assessment of growth and policy outlook

As reported by the International Monetary Fund, its Executive Board has completed the 2026 Article IV consultation with Uruguay and endorsed staff's appraisal of an economy that remains resilient despite slower near-term growth. Output growth moderates to 1.8% in 2025 after temporary shutdowns at a refinery and a cellulose plant reduce manufacturing output, while drought conditions that begin in the third quarter of 2025 weaken agriculture.

The IMF projects growth at 1.3% in 2026, reflecting the lagged effects of the drought, before a recovery to 2.4% in 2027 as the output gap narrows and private consumption and investment provide support. Inflation remains contained, standing at 4.7% in September 2026, with expectations anchored around the central bank's 4.5% target.

Labor market conditions also remain relatively firm, with unemployment at 7.2% in August 2026 and close to a historical low, although youth unemployment stays elevated. The current account deficit remains limited at 0.5% of GDP in 2025, and the banking system stays well capitalized, liquid and profitable, with systemic risks contained.

Fiscal consolidation and reform agenda

The IMF says fiscal targets are met in 2025 despite the slowdown and remain on track in 2026, while deficits in 2026 and 2027 are expected to stay aligned with the five-year budget. That path is designed to deliver consolidation totaling 1.5% of GDP by 2029 and to help stabilize public debt over the medium term.

Executive Directors also highlight Uruguay's strong institutions, credible policy framework and favorable market access, noting that sovereign spreads remain the lowest in the region and near historical lows. They say ample liquidity buffers and the country's reliance on foreign direct investment for most external liabilities help limit near-term fiscal and capital-flow risks.

On the policy side, the IMF points to further gains from fiscal framework reforms, debt management and progressive de-dollarization, while also backing continued refinement of the inflation-targeting regime and financial supervision. It says upside risks include stronger agricultural revenues, expanded market access and investment linked to the EU-Mercosur agreement, and larger-than-expected gains from supply-side reforms such as the Competitiveness Law and Uruguay Innova.

Our earlier coverage on sovereign resilience in a higher-rate environment explained how persistent geopolitical shocks and elevated public spending can tighten fiscal headroom and raise refinancing risks for governments. We noted that emerging and frontier markets are especially exposed because debt-service costs can rise faster than revenues, while energy and food price swings add to inflation pressures and complicate credit outlooks.

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