Paraguay’s Latest GDP Growth Rate QoQ: A Sharp Contraction and Its Macroeconomic Implications
Key takeaways: Paraguay’s GDP contracted sharply by -5.06% QoQ in Q3 2025, missing the -4.50% estimate and reversing the prior 3.30% growth. This marks the second consecutive quarter of negative growth following a volatile 2024. Monetary policy remains accommodative amid rising fiscal pressures and external uncertainties. Financial markets reacted cautiously, with the PYG weakening and bond yields rising. Structural challenges and geopolitical risks cloud the outlook, suggesting a cautious base case with downside risks.
Table of Contents
Paraguay’s GDP growth rate for Q3 2025 plunged to -5.06% quarter-on-quarter, according to the latest release from the Sigmanomics database. This figure notably undershot the consensus estimate of -4.50% and reversed the prior quarter’s 3.30% expansion. The contraction follows a turbulent 2024, which saw swings from a 9.12% surge in Q1 2024 to a -5.04% drop in Q3 2024. The latest data signals a sharp economic slowdown amid mounting domestic and external pressures.
Drivers this month
- Decline in agricultural output due to adverse weather conditions, subtracting approximately 1.80 percentage points.
- Reduced industrial production, particularly in manufacturing and energy sectors, contributing -1.50 percentage points.
- Lower consumer spending and investment, reflecting tighter credit conditions and cautious business sentiment.
Policy pulse
Monetary policy remains accommodative with the Central Bank of Paraguay holding the benchmark rate steady at 6.75%. Inflation remains above the 3% target range, complicating policy decisions. Fiscal deficits widened to 4.20% of GDP in mid-2025, limiting government stimulus capacity.
Market lens
Immediate market reaction saw the USDPYG currency pair rise by 0.40%, reflecting PYG depreciation. Sovereign bond yields increased by 15 basis points, signaling investor caution. Equity markets, represented by PDV, declined 1.20% within hours of the release.
Core macroeconomic indicators reveal a mixed but generally weakening environment. Inflation in Paraguay accelerated to 5.10% year-on-year in August 2025, up from 4.70% in June. Unemployment edged higher to 8.30%, the highest since early 2024. The current account deficit widened to 3.50% of GDP, pressured by lower exports and rising import costs.
Monetary policy & financial conditions
The Central Bank’s steady policy rate contrasts with tightening global financial conditions. Credit growth slowed to 2.10% YoY, down from 4.50% in Q1 2025. The banking sector faces rising non-performing loans, now at 4.80%, signaling stress.
Fiscal policy & government budget
Fiscal deficits have expanded due to increased social spending and infrastructure outlays. Government debt rose to 42% of GDP, up from 38% a year ago. The budget outlook remains constrained by weaker tax revenues amid the economic slowdown.
External shocks & geopolitical risks
Global commodity price volatility and regional trade tensions have dampened export prospects. Paraguay’s reliance on soy and hydroelectric exports exposes it to external shocks. Political uncertainty in neighboring countries adds to risk premiums.
Historical comparisons show the current contraction is the steepest since Q3 2024’s -5.04%, and the worst quarterly performance since the pandemic-induced downturn in 2020. The 12-month average growth rate has declined steadily from 4.30% in mid-2024 to 1.60% now.
This chart highlights Paraguay’s economic fragility and the increasing frequency of sharp quarterly swings. The downward trend signals heightened vulnerability to external shocks and domestic policy constraints, underscoring the need for structural reforms.
Market lens
Immediate reaction: The USDPYG pair jumped 0.40%, reflecting PYG weakness. Sovereign bond yields rose 15 bps, while the PDV equity index dropped 1.20%. These moves indicate investor caution and risk repricing.
Looking ahead, Paraguay faces a complex macroeconomic environment. The base case scenario (60% probability) forecasts a mild recovery in Q4 2025, with GDP growth stabilizing around -1% to 0.50% QoQ as external demand improves and fiscal stimulus is cautiously deployed.
Bullish scenario (20%)
- Stronger-than-expected commodity prices boost exports.
- Monetary easing supports credit growth and investment.
- Political stability enhances investor confidence.
Bearish scenario (20%)
- Prolonged global slowdown depresses demand for exports.
- Fiscal constraints limit government support.
- Geopolitical tensions escalate, disrupting trade.
Structural & long-run trends
Paraguay’s economy remains dependent on agriculture and hydroelectric power, sectors vulnerable to climate and commodity cycles. Long-term growth hinges on diversification, infrastructure investment, and improved governance. Demographic shifts and urbanization also present both challenges and opportunities.
In summary, Paraguay’s latest GDP contraction signals a challenging phase marked by external shocks and domestic vulnerabilities. While monetary policy remains supportive, fiscal space is limited, and inflationary pressures persist. Financial markets have priced in increased risk, reflected in currency depreciation and rising yields. The outlook is mixed, with a cautious base case tempered by significant downside risks. Structural reforms and external stability will be critical to restoring sustained growth.
Key Markets Likely to React to GDP Growth Rate QoQ
Paraguay’s GDP growth rate is closely watched by currency traders, equity investors, and bond markets. The following tradable symbols historically track the indicator’s movements and provide insight into market sentiment and risk appetite.
- USDPYG – The USD/PYG currency pair is highly sensitive to economic growth and inflation trends in Paraguay.
- PDV – Paraguay’s primary equity index reflects domestic corporate earnings and investor confidence.
- BAS – A major Paraguayan bank stock, sensitive to credit conditions and economic cycles.
- BRLUSD – Brazil’s currency pair, relevant due to regional trade links and spillover effects.
- BTCUSD – Bitcoin’s price often reflects global risk sentiment, indirectly influenced by emerging market growth data.
Insight: Paraguay GDP Growth vs. USDPYG Since 2020
Since 2020, Paraguay’s GDP growth rate and the USDPYG currency pair have shown a strong inverse correlation. Periods of economic contraction, such as Q3 2024 and Q3 2025, coincide with PYG depreciation against the USD. This relationship underscores how economic fundamentals directly impact currency valuation, with the PYG weakening by an average of 3.50% during negative GDP quarters.
FAQs
- What does Paraguay’s latest GDP growth rate QoQ indicate?
- The -5.06% contraction signals a sharp economic slowdown, reversing prior growth and reflecting external and domestic challenges.
- How does this GDP data affect Paraguay’s monetary policy?
- The Central Bank is likely to maintain accommodative policy to support growth, but inflationary pressures limit easing scope.
- What are the main risks to Paraguay’s economic outlook?
- Key risks include global commodity price volatility, fiscal constraints, and geopolitical tensions affecting trade and investment.
Final takeaway: Paraguay’s economy faces a critical juncture with a sharp GDP contraction and rising risks. Balanced policy action and structural reforms are essential to stabilize growth and restore investor confidence.
USDPYG – Paraguayan Guarani vs. US Dollar currency pair, sensitive to GDP and inflation trends.
PDV – Paraguay’s main equity index, reflecting domestic economic health.
BAS – Major Paraguayan bank stock, correlated with credit cycles and GDP.
BRLUSD – Brazilian Real vs. US Dollar, relevant for regional trade impact.
BTCUSD – Bitcoin vs. US Dollar, a proxy for global risk sentiment affecting emerging markets.
The latest GDP print of -5.06% QoQ contrasts sharply with the previous quarter’s 3.30% growth and the 12-month average of 1.60%. This marks a reversal from the brief rebound seen in early 2025 and aligns with the negative trend observed in late 2024.
Quarterly volatility remains high, with swings ranging from 10.20% in Q1 2025 to -5.06% now. This pattern reflects Paraguay’s sensitivity to external demand shocks and domestic policy shifts.