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Uruguay faces a global context of uncertainty and low growth. Domestically, there is a slowdown in GDP, fiscal challenges, and sluggish consumption and investment. However, the external sector is resilient, inflation remains stable, and the peso is showing strength.

In the post-pandemic period, amid a resurgence in inflation and elevated global debt levels, the debate over the level and trajectory of the neutral interest rate (r*) has resurfaced. This analysis explores this question for a selection of Latin American countries.

Political events at the centre scene, in a year marked by key elections in many regions with two warlike conflicts with tragic consequences still underway, contrasts with the resilience of the global economy, which continues its very soft landing process of activity and inflation almost silently.

The last two years in Latin America have been marked by differences in macroeconomic policy strategies. Chile and Peru have made significant interest rate reductions as their inflation has allowed. Meanwhile, Colombia and Mexico are more reluctant to implement significant reductions in their rates.

Uruguay continues to show a solid, liquid financial system with a good quality loan portfolio that translates into low levels of non-performing loans. Compared to the rest of the region, the penetration levels of the financial system are mid-range, which gives it a high growth potential for the medium term.

After a series of recessionary events, the global economy continues to recover while inflation continues its downward path. The region, with some exceptions, mirrors these trends, as well as Uruguay, where domestic specificities also come into play.

After the pandemic and the end of the construction of the third pulp mill, the Uruguayan economy faces a couple of years of moderate growth. However, in the long term, recent improvements in the sovereign risk rating reinforce the institutional quality and strength of the country's macroeconomic fundamentals.

The Latin American economy faces crosswinds in a scenario of disequilibrium, in line with international dynamics, where the main economic variables are still adjusting after the disruptive events of the most recent years.