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Peru’s Congress backed President Boluarte’s new Cabinet, with Gustavo Adrianzen appointed as PM amid her low approval rating and an upcoming impeachment debate related to an illicit enrichment investigation. This move highlights political instability and Boluarte’s significant unpopularity, with only a 9% approval rating in March.
Peru’s inflation rate accelerated unexpectedly to 3.05% YoY in March, surpassing forecasts and deviating from the central bank’s target range of 1% to 3%. This development poses a challenge to the central bank, which had been reducing interest rates before pausing in March at 6.25% after February’s unexpected inflation rise. The bank’s next rate decision is scheduled for April 11.
Bloomberg Intelligence noted that Peru’s labor market conditions, which usually trail the activity cycle, showed minimal impact from the economic downturn in 2023 on employment. With subdued growth expected, the labor market may deteriorate. Jobs growth slowed to 4.3% YoY in February, and inflation rose to 3.3%, influenced by base effects, but is expected to resume its downward trend.
China’s Cosco Shipping’s USD 1.3 bln Chancay port project in Peru, set for inauguration later in the year, has encountered regulatory challenges concerning service exclusivity. Peru’s port authority contends that the facility should be open to other service providers, a stance that might alter Cosco’s business strategy for the port. The Chancay port’s opening coincides with Peru hosting the APEC conference, highlighting the port as a focal point in US-China trade dynamics in the region.
Peru’s Executive Cabinet has issued an emergency decree to enhance fiscal sustainability and budget efficiency, maintaining the fiscal rule’s current deficit target of 2.0% of GDP. The decree prioritizes government spending, introduces austerity measures for Petroperu, and restricts non-essential expenses. This action addresses the bank’s announcement of a public deficit expansion to 3.0% of GDP. Following the IMF’s recommendations, the government aims to stabilize the fiscal environment without altering the existing fiscal framework.
The latest Economic Expectations Survey from Peru’s central bank indicates stable analyst expectations for inflation and GDP growth, with both projected at 4% for the upcoming years. Monetary policy predictions suggest a continuation of the easing cycle, with anticipated 25 bps cuts in the upcoming months, leading to a year-end policy rate of 5.38%.
Peru’s economy expanded by 1.37% YoY in January, driven by significant growth in the construction and mining sectors, despite falling short of the 1.70% growth expectation. Meanwhile, the central bank anticipates a reduction in inflation to 2.2% in 2024 and aims to achieve a fiscal deficit target of 2% of GDP this year.
Peru’s central bank held its key interest rate at 6.25%, contrary to market expectations of a 25 bps reduction. This decision comes after seven consecutive rate cuts, with the recent pause reflecting an inflation uptick to 3.3% in February, hovering at the upper boundary of the central bank’s 1%-3% target range. The bank highlighted a global economic forecast of moderate growth and lower inflation pressures but acknowledged persistent risks from international conflicts impacting fuel and freight costs.
Peru’s PM, Alberto Otarola, resigned amid corruption allegations, impacting President Dina Boluarte’s administration. His departure follows recent ministerial changes and occurs as the government navigates recovery from a recession influenced by adverse weather and political instability, with his resignation linked to a controversial government appointment and a leaked audio recording.
The Peruvian government has announced plans to support the state-owned oil company Petroperu, with guaranteed funding through a state bank. The finance minister highlighted the decision to provide cheaper funding backed by sovereign guarantees but did not specify the amount. This move is part of a broader initiative to restructure Petroperu amid the challenges facing the energy sector in Peru.
The Peruvian government has announced plans to support the state-owned oil company Petroperu, with guaranteed funding through a state bank. The finance minister highlighted the decision to provide cheaper funding backed by sovereign guarantees but did not specify the amount. This move is part of a broader initiative to restructure Petroperu amid the challenges facing the energy sector in Peru.
Peru’s economy shrank by 0.6% in 2023 compared to the previous year, marking its second-worst contraction in over 30 years due to political unrest and extreme weather. This decline follows an 11% plunge in 2020, with a 0.4% contraction in Q4 2023. Despite this, authorities project a 3% growth for 2024, hoping for a recovery in Q1 2024 due to positive base effects.
Peru’s economy shrank by 0.6% in 2023 compared to the previous year, marking its second-worst contraction in over 30 years due to political unrest and extreme weather. This decline follows an 11% plunge in 2020, with a 0.4% contraction in Q4 2023. Despite this, authorities project a 3% growth for 2024, hoping for a recovery in Q1 2024 due to positive base effects.
Peruvian Finance Minister Jose Arista committed to austerity measures to achieve a 2% fiscal deficit ceiling for 2024, acknowledging that the country surpassed its 2023 deficit target. Meanwhile, investments in Peru’s hydrocarbon sector from 1993 to 2022 totaled USD 19 bln (2% of GDP), underscoring the sector’s significant GDP contribution over the past 17 years.
Peruvian Finance Minister Jose Arista committed to austerity measures to achieve a 2% fiscal deficit ceiling for 2024, acknowledging that the country surpassed its 2023 deficit target. Meanwhile, investments in Peru’s hydrocarbon sector from 1993 to 2022 totaled USD 19 bln (2% of GDP), underscoring the sector’s significant GDP contribution over the past 17 years.
State-owned enterprises IN LATAM, despite challenges such as declining output and financial difficulties, are attracting investors with high-yield bonds perceived as having similar risks to sovereign debt. Companies like Mexico’s Pemex, Peru’s PetroPeru, and Chile’s Codelco have offered returns surpassing those of government debt based on the assumption that a performing sovereign will support these entities. Across EM generally, sovereign bonds are outperforming US treasuries amid doubts about the timing and pace of the Fed’s interest rate cuts.
State-owned enterprises IN LATAM, despite challenges such as declining output and financial difficulties, are attracting investors with high-yield bonds perceived as having similar risks to sovereign debt. Companies like Mexico’s Pemex, Peru’s PetroPeru, and Chile’s Codelco have offered returns surpassing those of government debt based on the assumption that a performing sovereign will support these entities. Across EM generally, sovereign bonds are outperforming US treasuries amid doubts about the timing and pace of the Fed’s interest rate cuts.
Peruvian President Boluarte inaugurated four new ministers, including the finance and energy and mines ministries, marking the most significant cabinet reshuffle in her 14-month administration amid economic challenges. Separately, Peru LNG experienced a slight decrease in export volumes in January 2024, with five cargoes loaded compared to six in December 2023, reflecting a 2.24% MoM decline. However, YoY export volumes increased by 2.14%.
Peruvian President Boluarte inaugurated four new ministers, including the finance and energy and mines ministries, marking the most significant cabinet reshuffle in her 14-month administration amid economic challenges. Separately, Peru LNG experienced a slight decrease in export volumes in January 2024, with five cargoes loaded compared to six in December 2023, reflecting a 2.24% MoM decline. However, YoY export volumes increased by 2.14%.
Peru’s trade surplus rose by 25.0% YoY to USD 2.0 bln in December, with a notable expansion to USD 17.4 bln in 2023, exceeding expectations and marking a 68.4% increase from 2022. This growth, equivalent to 6.5% of GDP for 2023, underscores Peru’s robust external position, supported by net international reserves totaling USD 73.9 bln or 27.8% of GDP by the year’s end.
Peru’s trade surplus rose by 25.0% YoY to USD 2.0 bln in December, with a notable expansion to USD 17.4 bln in 2023, exceeding expectations and marking a 68.4% increase from 2022. This growth, equivalent to 6.5% of GDP for 2023, underscores Peru’s robust external position, supported by net international reserves totaling USD 73.9 bln or 27.8% of GDP by the year’s end.
Bloomberg analysts highlight that the Peruvian central bank’s 25-bps cut and forward guidance reflects continued caution among policymakers. Despite improved inflation outlook and weak growth, the bank’s modest reduction signals resistance to accelerating easing, given the risks inflation and financial stability face from currency depreciation and low-interest rate differentials with the US in Peru’s highly dollarized economy, which may limit further easing.
Bloomberg analysts highlight that the Peruvian central bank’s 25-bps cut and forward guidance reflects continued caution among policymakers. Despite improved inflation outlook and weak growth, the bank’s modest reduction signals resistance to accelerating easing, given the risks inflation and financial stability face from currency depreciation and low-interest rate differentials with the US in Peru’s highly dollarized economy, which may limit further easing.
Fitch highlighted concerns on Monday regarding Peru’s fiscal challenges and the potential for persistently higher deficits and debt levels in the medium term. This assessment underscores the negative outlook on Peru’s BBB rating since October 2022. While the 2023 fiscal deficit slightly exceeded the 2.4% of GDP target, reaching 2.6% instead of the anticipated 2.8%, this deviation signals risks tied to subdued growth and political uncertainty impacting fiscal performance. For 2024, Fitch anticipates a narrower deficit, contingent on an economic uptick and non-repetition of temporary spending.
Peru experienced a 3.4% YoY increase in tax revenues in January, marking the first annual gain in 11 months, attributed to heightened economic activity and imports, as well as tax enforcement actions. The general sales tax, indicative of economic activity, rose by 4.6% YoY, suggesting potential positive GDP growth in the initial month of the year.
Fitch highlighted concerns on Monday regarding Peru’s fiscal challenges and the potential for persistently higher deficits and debt levels in the medium term. This assessment underscores the negative outlook on Peru’s BBB rating since October 2022. While the 2023 fiscal deficit slightly exceeded the 2.4% of GDP target, reaching 2.6% instead of the anticipated 2.8%, this deviation signals risks tied to subdued growth and political uncertainty impacting fiscal performance. For 2024, Fitch anticipates a narrower deficit, contingent on an economic uptick and non-repetition of temporary spending.
Peru experienced a 3.4% YoY increase in tax revenues in January, marking the first annual gain in 11 months, attributed to heightened economic activity and imports, as well as tax enforcement actions. The general sales tax, indicative of economic activity, rose by 4.6% YoY, suggesting potential positive GDP growth in the initial month of the year.
Peru’s finance ministry has assumed control over Petroperu from the energy and mines ministry, now holding a majority of its shares. This move comes as Fitch downgraded Petroperu’s debt to B+, citing the government’s reluctance to support the struggling state-owned oil company. The transition could prompt changes in the board of directors and address the urgent need for cash to sustain operations, including the newly opened Talara refinery, which faced delays and cost overruns exceeding USD 6 bln.
Peru’s finance ministry has assumed control over Petroperu from the energy and mines ministry, now holding a majority of its shares. This move comes as Fitch downgraded Petroperu’s debt to B+, citing the government’s reluctance to support the struggling state-owned oil company. The transition could prompt changes in the board of directors and address the urgent need for cash to sustain operations, including the newly opened Talara refinery, which faced delays and cost overruns exceeding USD 6 bln.
Peru’s economy showed a modest 0.3% growth in November 2023, marking the first growth since April and contrasting with its poor performance amid political turmoil and severe weather impacts. Despite this slight uptick, the central bank’s chief economist, Adrian Armas, anticipates a negative growth rate of 0.3% for the fourth quarter compared to the previous year. In response to the slowing inflation and efforts to stimulate economic recovery, Peru’s central bank recently lowered interest rates to 6.50%, the lowest in 16 months.
