Despite the turbulence caused by the COVID-19 pandemic, Uruguay remains a top stop for expanding businesses in Latin America. It is a Mercosur founding member, home to leading entrepreneurs, such as Ariel Pfeffer, and has over the last few years displayed economic recovery, attracting local and foreign investors.
The healthy country’s foreign direct investor (FDI) has made the country a top recipient of FDI, in regards to South America’s GDP. The growth is linked to Uruguay’s free trade agreements, its participation in ALADI and Mercosur, as well as its attractive free zones.
The COVID-19 Impact
The country’s economy is largely dependent on the neighbouring Argentina and Brazil. Following the economic uncertainty and shutdown in Brazil and Argentina’s recession, 2019 faced a weak growth rate of 0.2 percent.
As a result of the 2020 COVID-19 outbreak, the local GDP fell by 3 percent, but is expected to pick up by 5 percent in 2021 as the world economy recovers. In the past few years, the economy has diversified, with the government seeking to restore business profitability through fiscal policies to foster economic growth.
Some of the key elements are management and regulatory changes within public organisations, the commitment to open trade and the reform of labour relations. In terms of unemployment, the rate of the active population increased to 9.4 percent in 2019 from the previous 8.4 percent.
This was a figure that was predicted to rise to 10.5 percent in 2020 due to COVID-19, but will fall to 8.1 percent in 2021 after the management of the pandemic.
For the first time in two decades, the country’s economy is expected to get into a recession. On the external prospect, the economic growth may keep being impacted by the crisis faced by the primary trading partners, as well as, the tightening global capital markets.
In 2019, the GDP growth was reported to have decelerated to 0.2 percent, the lowest rate recorded since 2002. Before the pandemic, it had been predicted that the growth rate would see a rise in 2020, following the implementation of the reform agenda. Due to the instability facing supply and demand in the face of the coronavirus pandemic, the economic activity has declined sharply.
The GDP, as a result, is predicted to fall by 3.7 percent towards the close of 2020. Fortunately, the proposed DPL amounting to 303.8 million Pounds will support the government in the mitigation of the economic impact caused by COVID-19.
Also, following stringent supervision and regulation, the country’s banks are adequately prepared, in terms of liquidity and capitalisation, meaning that there are high chances of withstanding a possible recession.
The banking sector is cushioned with adequate liquidity buffers and high capital levels, suggesting that on average, they could withstand a recession while also sustaining an adequate level of net worth.
Like many countries in Latin America and across the world, in Uruguay, the effects of the pandemic percolated the economy almost immediately, something that triggered a notable fall in the economic activity.
Alongside closing its borders, setting up checkpoints and enforcing movement restriction, Uruguay has also focused on testing locals of the bordering cities, such as those in Brazil.
Testing, particularly in Brazil has been scarce and is so far facing an overwhelmed health system, meaning that the collaboration will be beneficial to the country. More so, Uruguay has been on the forefront in the implementation of pandemic control, a move that may see the country’s economy stabilise by 2021.