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The business climate in Uruguay is viewed as favorable for 2024

by | Dec 26, 2023

Inflation management is one of the best-evaluated areas within Uruguayan President Lacalle Pou’s management.

Businessmen’s expectations for a favorable business climate in Uruguay in 2024 remain steady. This is the case even within a scenario where, in recent months, several signs of a less favorable economic panorama have taken hold.

That is one of the main conclusions of the business expectations survey carried out by the Uruguayan consulting firm Exante, whose latest edition was recently released. The survey covered the opinions of 330 managers and senior executives of large and medium-sized companies operating in Uruguay. It was carried out between October 2 and October 31, 2023.

85% of the executives consulted consider that the business climate in Uruguay is “good” or “very good.”

Among the most positive aspects that currently contribute to the business climate in Uruguay are the legal security and stability of the country. The businessmen also mentioned straightforward rules, low inflation, economic openness, and political and legal stability.

Among the most negative aspects of the country’s business climate they mentioned were the exchange rate delay, high costs, bureaucracy, unions, labor conflict, market size, and the situation in

Economic Situation

In this new semi-annual survey, positive responses regarding the recent economic performance and the general situation of companies in the last year fell again. Nearly 25% of those surveyed consider the economic situation less favorable than a year ago.

Meanwhile, the growth expectations of the Gross Domestic Product (GDP), with a horizon of three or four years, moderated again and are barely above 2% annually (when in 2021 and until the beginning of 2022, they had risen on a 3% basis annually).

According to Exante, this is consistent with what the macroeconomic indicators indicate, with the shift towards more restrictive financial conditions in the international context and the fact that several sectors continue to be exposed to severe competitiveness difficulties within the region.

Fall in inflation and adjustment of expectations for the business climate in Uruguay

In Uruguay, inflation is currently approximately 4% and is within the target range set by government authorities, between 3% and 6%. The sharp drop in recent months has been reflected in an improvement in businessmen’s inflation expectations.

According to the survey, only 6% of respondents expect inflation to close 2024 above 8%, and half believe it will be within the target range.

Expectations over three or four years also fell, with an expected average inflation of 6.1%, contrasting with records systematically higher than 7% in the years before the pandemic.

In any case, the survey warns that inflation expectations are not fully anchored since, when assessing the business climate in Uruguay, half of executives continue to expect inflation to exceed the target range in that medium-term horizon.

On the other hand, almost 40% of those surveyed indicated that their companies must incorporate minor nominal price and cost adjustments in their budgets for 2024. This shows that inflationary inertia still represents an important challenge for economic policy, Exante highlighted.

What is expected about the dollar?

Most executives surveyed anticipate an exchange rate higher than the current value ($39.9), although lower than they estimated in previous surveys. A third of business owners foresee an exchange rate below $41 within a year.

The situation and prospects for companies

Despite the signs of a less optimistic situation, the businessmen consulted maintain a relatively positive vision of the business climate in Uruguay and the performance that their companies will have during the coming months.

In this sense, about half expect an increase in production and greater investment, while negative responses do not exceed 10% in either of the two areas.

In both cases, this is a more optimistic outlook than the one that prevailed in the years before the pandemic, when the economy was also relatively stagnant (at that time, positive responses were between 20% and 30%), notes Exante.

In addition, the proportion of those who expect a favorable business climate in Uruguay and an increase in profitability in 2024 remained at 35%. In any case, the net balance of responses “will increase” – and “will decrease” remains positive (23%).

Hiring of personnel and real salary

Regarding the decision to hire personnel, a cautious view continues to predominate. Only two in 10 executives indicate they expect to hire more workers next year.

The high real salary (49%) appears as the main element that, in the opinion of businessmen, determines the increase in employment. This is followed by low business volume (46%) and the availability of labor-saving technologies (40%), which are among the most mentioned.

In any case, the net balance of responses will “increase” vs. “will decrease” about employment in the company itself varied slightly and remains positive.

Main challenges in the business climate in Uruguay

Six out of 10 responses indicated that their companies’ main challenge is cost pressure. This is consistent with the situation of low competitiveness and growth that the economy is experiencing. Other factors, such as growing competition, human resource management, and lack of demand, also appear on the list. These conditions were noted by approximately one-third of those consulted.

How do you evaluate government management?

The evaluation of the management of Luis Lacalle Pou’s government continues to be “extremely favorable,” according to Exante. 79% approve of it, and only 2% disapprove of it.

The balance is favorable in almost all management areas. Still, on this occasion, there was an appreciable increase in positive assessments regarding the management of inflation and, on the contrary, a deterioration in the net balance of responses regarding international competitiveness.

The business climate in Uruguay offers considerable advantages

The business climate in Uruguay offers several distinct advantages. Firstly, Uruguay boasts a stable political environment with a strong rule of law, ensuring predictability and security for investors. Secondly, its strategic location between the larger economies of Brazil and Argentina provides access to a broader market and regional integration benefits. Thirdly, Uruguay has a highly literate and skilled workforce known for its proficiency in various sectors, particularly services and technology. Furthermore, the country’s robust infrastructure, including modern ports and efficient transportation networks, facilitates seamless trade operations. Additionally, Uruguay has established a favorable regulatory framework for foreign investments, offering incentives, tax breaks, and protection mechanisms to encourage business growth and innovation. Lastly, its commitment to sustainable practices and environmental stewardship positions Uruguay as a responsible and forward-thinking business destination, appealing to global partners and conscious investors alike.

 

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