In a few weeks the closing date of the GDP of the Uruguayan economy in the year 2023, but most analysts, and financial and business actors, estimate that the growth average in the year will be very modest, hardly higher than 1% and perhaps closer to 0%.
Activity in the country suffered significant negative impacts, including the very harsh drought from last summer that affected the agro Yet the energy generation, to which was added the Argentine crisis, with a devaluation scenario through the parallel exchange rate, which caused much consumption to be diverted from Uruguayans towards that country. Furthermore, the situation in Argentina It is obviously affecting the tourism sector, among others.
These factors – and some others – led to poor performance, especially in the first half, with a drop in GDP of 0.5%. The deterioration eased in the third quarter, but there was still a 0.2% year-on-year drop in GDP.
However, the new data that has emerged in recent days on the performance of the economy in the final months of 2023 looks somewhat more encouraging. On the one hand, the employment remained at good levels, with year-on-year increases of around one percentage point in the employment rate. In turn, the real salary remained firm, with year-on-year increases compared to last year of 4% or more. This resulted in household income ending the year 2023 – data from the fourth quarter – with a year-on-year increase of 2.8%.
The improvement in the IMAE and the bittersweet taste in fiscal matters
In turn, the Monthly Indicator of Economic Activity (IMAE) who recently began publishing the central bank (although it has been in development for several years), showed a year-on-year increase of 5.1% in December, another indicator that the economic close of 2023 has been more dynamic than the beginning.
The fiscal figures at the end of 2023 were also known, with a bittersweet taste. On the one hand, the collection of the DGI fell 4.7% real year-on-year in December, particularly due to the drop in consumption tax collection (VAT and Imesi), as well as lower corporate income tax collection (IRAE). Property taxes advanced and IRPF. For the entire year 2023, collection fell 1.3% in real terms.
However the taxes workout In 2023 it closed with a deficit lower than what had been occurring in the records of previous months, because the accumulated of the moving year left behind the exceptional expenses that occurred in December 2022. In such a way that the consolidated fiscal deficit for the year 2023 was 3.6 %. It is a figure that obviously deserves concern, but it is far from the serious 4.3% that the deficit was at for a few months, during the second semester.
This final boost to the economy in 2023 allows us to project a somewhat more auspicious start for 2024. The tourist season -even with the complicated situation that persists in Argentina- It has had a reasonable performance, both in domestic tourism and from abroad. Even so, the intense spending of Uruguayans abroad persists, with thousands of compatriot families or travel groups visiting regional or international destinations for the first time.
On the other hand, the decrease in inflation -which largely explains the increase in real wages, beyond the best productivity from some sectors – came hand in hand with a exchange delay which the Central Bank itself quantifies at around 13%. These problems of competitiveness-price They certainly affect activity and can slow the progress of the economy this year. In fact, it will surely have a negative impact in 2023, beyond the drought and the Argentina effect.
The exchange rate issue is even more worrying if we take into account that there has been a drop in several of the main prices of export products in the country. Uruguay, especially in the agricultural sector. It is not a collapse by any means, but prices are much closer to the historical averages in dollars than to the exceptional records that existed just a couple of years ago.
Costs and investment
Meanwhile, those that are clearly above the historical averages are the costs. Not so much the imported products and inputs, which – in general – go hand in hand with export prices – but rather the local (non-tradable) costs, closely linked to wages. In fact, the average dollar salary of the Uruguayan economy rose almost 9% in 2023 and is 30% above its level at the end of 2019. A fact that is possibly associated with this is that the increase in employment in the last months of 2023 occurred especially in the non-formal sector.
Therefore, the question arises: can the economy sustain this shocking increase in income in international terms? Legitimate doubts arise, among other things because although important reforms have been processed that give more productivity to the economy, there are also many pending accounts. A key issue to resolve this will be the dynamics of the investment.
Uruguay maintains an institutional reputation as a very good investment location, which – among other things – has attracted external investment to the real estate, which appears very dynamic. But the global scenario looks more adverse: although the main central banks have already begun to lower the interest rates, These will remain high in historical terms, making fixed income placements more attractive compared to risk investments.
In any case, the economy will surely perform better this year than last year. The pandemic is clearly behind us, drought not quite and the vocation of Uruguay for maintaining macroeconomic stability and avoid crises, seems firm. The challenge is to grow more.