Uruguay's economy shrinks as tech investors circle with expansion plans

The tech community Praxis has chosen Uruguay to build what it calls a "city of the future," and its founder is expected to meet with President Yamandú Orsi in New York in the coming days. The news arrives at a singularly uncomfortable moment for the government: that same day, Central Bank data confirmed that the economy contracted 0.8% in the second quarter, complicating the executive's growth targets and fueling an increasingly urgent debate about the country's competitiveness and structural dynamism.

The paradox is striking. While niche global investors — among them the Praxis network, which brings together internationally-minded libertarian entrepreneurs and thinkers — choose Uruguay for its institutional stability and relative regulatory openness, macroeconomic data continue to flash warning signs. The negative second quarter follows a first quarter of 2026 that posted growth of just 0.8%. The economy, according to Ceres's own analysis, started 2026 "flat" after having grown in 2025 almost exclusively on the back of statistical carryover. Ceres's leading index rose 0.3% in May — two consecutive months of marginal expansion — but with no firm signs of acceleration. Consultancy CPA Ferrere, more categorical, projects that the country will grow just 1% in 2026, well below the official target.

Against that backdrop, the Consejo Fiscal Autónomo formally warned Parliament that the Ministry of Economy and Finance projections included in the Rendición de Cuentas present a significant "overestimation." The warning is politically significant: the independent technical body is questioning the numerical architecture on which the Frente Amplio government built its medium-term fiscal strategy. Minister Gabriel Oddone, for his part, had acknowledged before the Senate that the probability of revising downward the growth forecast for 2026 is "quite high," though he insisted the economy "is moving forward" and that the government has met its defined targets. The Senate, with the votes of the governing coalition, endorsed his management.

The competitiveness debate also has a sectoral dimension. The competitiveness bill began its consideration in the Chamber of Deputies, where ruling-party lawmakers described it as "interesting but improvable." In parallel, the MEF announced measures to reduce costs and red tape to facilitate foreign trade, though Oddone lamented that the budget did not include the elimination of mandatory customs broker involvement — a reform he had identified as a priority. The government opted to be "cheaper without deregulating," in the words of analysts following the process, a politically comfortable balance whose real effectiveness in attracting productive investment remains the subject of skepticism among private economists.

On the energy front, Oddone himself admitted that HIF Global's green hydrogen plant project is advancing "more slowly than expected," and clarified that if the project does not move forward it will not be due to the government's "responsibility or clumsiness" — a formulation that suggests genuine concern about its viability while seeking to avoid bearing the political cost of failure. Green hydrogen had been one of Uruguay's flagship bets as a clean energy exporter targeting European markets.

On the judicial-corporate front, Montecon's shareholders irrevocably withdrew the arbitration they had initiated against Uruguay before ICSID, the World Bank tribunal that arbitrates disputes between investors and states. The withdrawal closes a conflict that had generated regulatory tension in the port sector and eliminates a contingent risk for public finances, though the precise reasons for the withdrawal have not been publicly detailed.

The pharmaceutical sector — with 550 companies generating more than USD 3.1 billion a year — emerged as one of the focal points of the discussion on productive diversification, a reminder that Uruguay's export base has pockets of sophistication that coexist with an aggregate economy struggling to gain traction. The World Bank, in a recent report on the region, identified low growth, PISA test results, employment, and the energy matrix as the country's main challenges. The diagnosis aligns with that of the three economists who, according to El Observador, point to low growth, a persistent deficit, and competitiveness problems as the three structural tensions Uruguay has failed to resolve.

Worth watching in the coming weeks: the progress of the competitiveness bill in Parliament, the meeting between Orsi and Praxis's founder in New York — which could yield concrete investment commitments — and third-quarter activity data that will reveal whether the second-quarter contraction was transitory or the beginning of a more worrying sequence. The government's fiscal credibility, questioned by the Consejo Fiscal Autónomo, will also test market confidence in a global context where Uruguay, judging by the dollar that opened this Friday, September 18 without significant variation, retains access to external financing but at the cost of an increasingly narrow fiscal margin of maneuver.