The economy is showing negative signs, which could be the beginning of a decline in economic activity
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The General Tax Directorate (DGI) reported that in October 2025, real revenue (discounting inflation) fell by 4.9% compared to the same month of the previous year.
The main taxes explaining the decline were VAT (-5.8%), IMESI (-7.2%), and IRAE (-9.1%). Despite this monthly contraction, the accumulated figure for January-October still shows real growth of 2.5%.
From a perspective focused on real economic activity rather than nominal aggregates, this October figure deserves special attention for several reasons:
1. VAT is the most direct indicator of private consumption. When household spending contracts in real terms, revenue from this tax falls almost immediately.
The October decline suggests that Uruguayan families are reducing purchases of goods and services beyond what official inflation explains, whether due to loss of purchasing power, increased precautionary savings, or both.
Monedas
2. IMESI (tax on specific consumptions: alcohol, tobacco, fuels, etc.) also depends on discretionary consumption.
Its sharper decline compared to VAT indicates that households are cutting back first on those goods they can postpone or substitute, a typical behavior during periods of rising economic uncertainty.
3. IRAE (corporate income tax) reflects the accounting results of the non-financial private sector and agricultural activities. A 9% real year-on-year drop anticipates that many companies are generating lower profits or even losses.
This usually occurs when costs (wages, energy, imported inputs) rise faster than sales prices or when demand weakens, forcing margins down to maintain volumes.
In summary, the simultaneous decline of these three taxes points to a simultaneous contraction of consumption and private investment, the two main drivers of any economy.
Imagen de la bandera de Uruguay
The fact that the annual accumulated figure remains positive is largely explained by the inertia of the first months of the year, when activity was still benefiting from the statistical carryover of 2024 and from some favorable price effects in the export sector.
However, the October figure breaks that trend and suggests that the expansionary phase may be running out of steam.
When the private sector reduces spending and investment, the drop in revenue is not primarily a "fiscal problem," but rather the inevitable consequence of lower real wealth creation. Attempting to offset that drop by raising rates or creating new taxes usually worsens the problem: more resources are extracted from the same sector that is already contracting, further reducing consumption and future investment.
In small, open economies like Uruguay's, the sustainability of public spending ultimately depends on the private sector generating genuine tax surpluses.
When those surpluses begin to dwindle, as now appears to be happening, prudence dictates adjusting spending to the new productive reality rather than forcing greater tax extraction that ends up deepening the slowdown.
Historical experience shows that periods of fiscal expansion financed by increasing tax pressure usually end in sharper corrections when real activity can no longer sustain them.
The October figure, therefore, should be read less as a "temporary dip" and more as an early warning that the private sector's carrying capacity is reaching its limits.
