He Central Bank of Uruguay (BCU) released the report of National accounts of the last quarter and of all of 2022, and the results were worse than expected: although the economy grew by 4.9% Over the past year, the country has entered a technical recession and you are beginning to see the first signs of slowdown warned by different political-economic entities of the region and the world.
Although the projections did not deviate that much from what the government estimated – growth of the Gross Domestic Product (GDP) of 5%—, the impact of the drought It was noted in the last part of the year and a scenario that was already lukewarmly optimistic worsened, to the point that doubts begin to appear about whether it will be possible to reach 2% growth by 2023.
Likewise, 4.9% mark a deceleration compared to 2021, when the expansion was 5.3% after the worst year of the Covid-19 pandemic. In addition, the last quarter of 2022 registered a 0.1% drop in GDP compared to the same period a year ago; and 1.3% compared to the immediately previous quarter.
This data is what confirmed the technical recession in the country.
What does a technical recession mean?
A technical recession occurs when GDP growth contracts for two consecutive quarters in the economy of a country. That is, what happened in Uruguay during the second half of 2022. It should be noted that these situations usually occur after a period of growth —what was seen during the post-pandemic recovery period—; and that the stagnation is observed in most of the countries of the region, although in the national territory it took on slightly more aggravating characteristics.
Although this indicator, unlike what is considered a economic recessiondoes not imply the affectation of all productive factors equally, but rather that the setback is concentrated in certain sectors or for a certain time —in this case, the strongest example is the impact of the drought on the agro-export complex that, although central to the Uruguayan economy, it is not the only source of income and jobs for the country—; it is important anyway since, among other things, it determines the monetary policy of central banks.
In the case of Uruguay, this information could be essential so that, in a new meeting of the Monetary Policy Committee (Copom) in April, the BCU decides what to do with the reference interest rates. Because the truth is that, as organizations such as the World Bank, he Rising rates—usually with anti-inflation targets—amplifies recession risks. And in the current Uruguayan scenario, this will be the last thing the government wants, especially in a pre-election year and with such important reforms that affect the country’s fiscal structure, such as the reform of social security and the reduction to Personal Income Tax (IRPF) and to Social Security Assistance Tax (IASS).
The recession will have a direct impact on employment and activity levels in the country. But, on the other hand, it can bring good news: the application of a more contractionary monetary policy and the drop in benchmark interest rates to contain the deepening of the slowdown in growth which, in turn, will influence the dollar strengthening and in a trend towards equilibrium of the exchange rate in Uruguay.
Source: Ambito
