Paraguay's economy thrives despite looming challenges

Paraguay's economy has shown notable growth amid various structural challenges, reaching strong macroeconomic indicators as the first half of the year concluded. By the end of June 2025, the country's GDP saw an impressive year-over-year increase of 5.9% in the first quarter alone, with a growth projection of 5% for the first half. Despite these positive indicators, inflation held steady at 3%, and international reserves exceeded $10 billion, showcasing a complex economic landscape influenced by both internal and external factors. The recovery of the economy has largely been driven by certain sectors such as construction, energy, and services; however, the agricultural sector reported negative growth due to the adverse impacts of drought. Manuel Caballero, an economist analyzing the situation, cited a rebound in domestic consumption as a primary contributor to this growth, with consumption rising by 9.3%. This consumer spending increase, coupled with Argentina's monetary tightening, which raised commodity prices in border areas, has bolstered domestic trade within Paraguay, highlighting the interdependent nature of regional economies. While the economy has achieved solid growth, experts remain cautious about its sustainability and the implications for social welfare and employment. Economist Verónica Serafini pointed out that despite economic expansion, the benefits have yet to significantly translate into job creation or enhancements in social well-being. Currently, 75% of employment instances in Paraguay remain informal, and poverty levels are stagnant rather than declining, indicating a disparity in economic distribution. Fiscal policies implemented by the Paraguayan government exhibit contractionary measures, with the Central Bank maintaining a 6% interest rate and the Finance Ministry targeting a deficit below 2% of GDP. Despite sustainable indicators like public debt at approximately 40% of GDP, rising service burdens of debt are becoming a critical concern. Financial constraints have impeded public investment in essential sectors such as health, education, and social protection. As Paraguay navigates these economic challenges, the continuing impacts of climate change, evident through the drought affecting soybean yields crucial for exports, remain a significant risk in the latter half of the year. Overall, while macroeconomic stability is essential, translating this into meaningful progress for employment and investment in social infrastructure is necessary for the nation's long-term growth and resilience.