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Peru’s central bank lowered its policy rate by 25 bps to 6.5%, marking the fifth consecutive cut. The move aims to steer inflation, which stood at 3.24% in December, back within the target range of 1% to 3%. The bank indicated that future decisions will be guided by incoming inflation data. Meanwhile, Peru experienced a significant increase in its trade surplus, reaching USD 1.93 bln in November 2023, as exports rose by 16.4% YoY, while imports declined by 10.8%.
Peru’s Finance Minister Contreras expressed plans to issue longer-dated, local-currency debt to replace dollar bonds as the Fed begins reducing interest rates. In May, Peru issued PEN 9.2 bln in bonds maturing in 2033, swapping out USD debt. Contreras anticipates more attractive borrowing rates in the future and sees this strategy as a response to Peru’s current economic challenges, including a recession and social unrest.
Latin American central bankers might pause their easing cycles due to an uncertain global scenario, as per JPMorgan & Chase Co.’s chief economist for the area. Policymakers are alert about rising US treasury yields and potential Fed actions that might intensify inflation. LATAM currencies, after starting 2023 strongly, have recently seen declines, with drops in the Chilean peso by around 9%, Mexico’s peso and Peru’s sol (7%), and Brazil’s real (6%).
The construction sector in Peru shrank by 9.6% in August, marking its eighth straight month of decline. Despite a 9% drop from January to August, Scotiabank predicts a rebound in 2024. They anticipate disruptions due to heavy rains affecting project work and cement transport in early 2024 but also foresee a 2% growth in private investment and enhanced public investment.
Despite earlier dismissals, Peru’s finance ministry has acknowledged the country’s economic recession. With declines in output during the first two quarters and continued reductions in economic activity, some economists anticipate a contraction for the entire year. Factors, including social unrest and adverse weather events, have exacerbated the economic challenges. Bloomberg Economics predicts a 0.1% economic shrinkage for the year.
According to analysts, Peru is poised to exceed its fiscal deficit limits in 2023 and 2024, primarily due to underwhelming public revenue. The Finance Minister’s previous optimistic forecasts for an economic revival failed to materialize, leading to a revision of growth expectations from 2.5% to 1.1% for 2023. This outlook remains more hopeful than the general market sentiment. Moreover, with current predictions of a 0.6% economic contraction, concerns are rising about the nation’s fiscal stance and creditworthiness.
Due to adverse weather conditions brought about by the El Nino phenomenon, Peru’s agricultural sector, the third largest economic sector, is anticipating challenging times ahead. Gabriel Amaro, leader of AGAP, predicts a 5% decrease in farm shipment revenues this year, with stability next year hinging on El Nino’s intensity.
Peru’s trade surplus expanded to USD 1.047 bln in August, up from USD 609.1 mln the previous year. Even though exports declined by 5.2%, the sharper 14.3% drop in imports contributed to this surplus. Between January and August 2023, the trade surplus grew significantly compared to the same period a year earlier.
Peru’s economy contracted 0.63% YoY in August, following a 1.23% decline in the prior month, with economic activity declining by 0.58% in the first eight months of 2023. Growth forecasts have been frequently lowered, currently set at 1.1% for 2023. Finance Minister Contreras initially attributed the economic downturn to temporary factors like unrest and adverse weather. However, he later admitted to the economy’s stagnant recovery. Analysts predict a potential 0.1% shrinkage for Peru’s economy in 2023, marking its first non-pandemic-related contraction in 25 years.
Peru’s annual inflation rate in September 2023 decreased for the eighth month to 5.04%, down from 5.57% the previous month. This rate, the lowest since August 2021, has been above the central bank’s target for 27 continuous months. Consumer prices increased by just 0.02% MoM, a slowdown from August’s 0.38% and below the expected 0.26% increase.
Peru’s food export revenue reached a record USD 9.807 bln in 2022, up 12.3% from 2021. This growth, expected to persist in 2023, is owed to Peru’s involvement in 22 foreign trade agreements (FTAs), granting nearly 90% of its food exports tariff benefits in their respective markets.
Peruvian Finance Minister Contreras announced expectations for the economy to recover in Q3 and Q4 2023, targeting a 1.1% growth by December. The government aims to boost sectors that experienced production declines, aid small and medium enterprises, and provide credit for the impacts of the El Nino phenomenon. On the price front, Contreras expects inflation to ease to 5.2% by year-end. The emphasis is on balanced fiscal spending, aligning with the country’s fiscal rules.
Peru’s economy shrunk by 0.5% YoY in Q2 2023, marking the second straight quarter of contraction, mainly driven by a 3.9% decline in domestic demand. Although government consumption rose by 3.9%, private consumption showed only a marginal increase of 0.4%. The construction sector was notably weak, contributing to a 5.6% fall in gross fixed capital investment. However, exports surged 9.9%, supported by a 22.3% hike in mined products, while imports contracted 2.2%.
Peruvian Economy and Finance Minister Alex Contreras is in Spain for a tour focused on fostering investment (FDIs) and bolstering relations with European nations. Discussions encompass technological and digital evolution, public-private partnership visions for 2023 and 2024, and strategies addressing the El Nino phenomenon.
Peru’s Private Investment Promotion Agency (Proinversion) plans to award two port projects worth USD 600 mln. One is a USD 400 mln New San Juan de Marcona Port Terminal, and the other is a USD 200 mln Puerto de Chimbote, both to be developed as Public-Private Association (APP) projects. The Marcona port will focus on loading and unloading services, particularly for the mining industry.
Peruvian president Dina Boluarte announced initiatives to support the country’s SMEs. The government plans to spend nearly one billion Peruvian sol (USD 271 mln) in 2024 on purchases from local SMEs through the Compras a MyPeru program. An enhanced version of the Reactiva Peru program, aimed at stimulating business recovery, is also expected to be launched later this year.
Peru’s economy minister, Alex Contreras, anticipates a robust USD 52 bln in private investments for 2023. The government aims to boost this figure to USD 60-70 bln. Contreras highlighted double-digit growth in private investment in infrastructure during the first half of the year and expects this trend to continue in 2023. Public-private partnerships and mining sector investments are also rising, including a USD 2 bln commitment from the San Rafael mining company.
Peru’s economy ministry expects exports will grow by 1.7% in 2023 and 4.9% in 2024, driven by higher volumes in traditional exports, like copper, and non-traditional exports, especially in agriculture. Tourism is also expected to recover, aligning with the Multiannual Macroeconomic Framework for 2024-2027.
According to Peru’s central bank, net international reserves rose to USD 73.026 bln (29% of GDP) as of August 23, an increase of USD 1.142 bln compared to the end of 2022. The FX position, however, was USD 50.08 bln, down by USD 1.96 bln since December 2022, mainly due to foreign currency sales to the public sector, used to increase the Fiscal Stabilization Fund and repurchase bonds.
Peru’s central bank confirmed a 0.5% YoY drop in GDP for Q2 2023, as anticipated by Scotiabank. A notable 3.0% drop in domestic demand exceeded expectations, attributed to volatile inventory changes. Despite headwinds like social conflicts and severe weather events like Cyclone Yaku affecting Q1, seasonally adjusted GDP actually grew 1.3% in Q2 compared to Q1. Scotiabank expects a gradual economic recovery to begin in Q3, anticipating around 1.0% YoY GDP growth, assisted by declining inflation rates and a potential recovery in private consumption and investment.
Citigroup acquired a stake in Peruvian FX fintech startup Rextie, though specifics of the deal remain undisclosed. Founded in 2016, Rextie has processed USD 4.5 bln in forex transactions and anticipates reaching USD 7 bln by the end of next year. The company serves 12,000 medium and small businesses and 170,000 individuals in Peru, offering FX, factoring, and payment processing services. This investment comes amid a 54% YoY decline in funding for Latin American startups in Q1 2023, marking the lowest volume in three years.
According to the latest weekly report by Peru’s central bank, the country’s net international reserves amounted to USD 73.476 bln, equivalent to nearly 29% of its GDP, marking an increment of USD 1.592 bln from 2022’s end. However, the country’s exchange position on the same date stood at USD 49.97 bln. This reduction primarily results from FX sales totaling USD 3.202 bln to the public sector.
Peru’s economy, which contracted in H1 2023, shows potential recovery signs, stated the nation’s finance chief. The country’s GDP decreased by 0.56% in June, marking two consecutive quarters of decline. Factors like anti-government protests and unfavorable weather conditions impacted growth. However, the minister indicated promising early data for July and August, despite significant drops in the fishing and manufacturing sectors. Contrarily, the mining and oil industries saw 16% growth.
Peru’s trade surplus expanded to USD 1.399 bln in June from USD 981.6 mln in June 2022. Exports decreased by 8.2% YoY, influenced by a drop in sales of traditional and other goods. In contrast, imports sharply declined by 18.3% due to a significant reduction in purchases of intermediate goods. For the first half of 2023, the trade surplus surged to USD 8.23 mln, up from USD 5.73 bln during the same period in 2022.
Peru’s central bank held its interest rate at 7.75% for the sixth consecutive month in August 2023. The annual inflation rate in the country dropped to 5.88% in July, its lowest since January 2022, while core inflation decelerated to 3.89%. However, both rates are above the target range. Inflation expectations for twelve months decreased to 3.57% in July from 3.83% in June, and indicators hint at a moderate economic recovery in July, albeit remaining pessimistic.
Peru’s economy minister underscored an encouraging outlook for businesses within the forthcoming six to 12 months, suggesting a steady recovery of the national economy from the challenges encountered during the first half of 2023. Despite short-term forecasts continuing to exhibit a touch of pessimism, a sentiment that has lingered for the past three years, Contreras remarked on the elevated levels of optimism, equating it to the pre-electoral phase.
As of August 2, Peru’s international reserves surged to USD 74.23 bln, making up 29% of its GDP, with a significant portion allocated to FX sales for the public sector. On the economic front, Peru’s annual inflation rate declined to 5.88% in July, the lowest since January 2022, and the core rate declined to 3.89% YoY in July. The central bank kept its policy rate at 7.75%. Economic growth predictions for 2023 range from 1.2% to 2.0%, and for 2025, growth is anticipated between 2.6% and 3.0%.
Peru’s finance minister, Alex Contreras, indicated that preliminary data suggest the country’s economy contracted in June, marking two consecutive quarters of negative growth, typically defined as a recession. The data reveals that the economy shrank by around 1% in June. Official figures showed a 0.43% contraction in Q1 2023, followed by a 0.31% expansion in April, but then a contraction of 1.43% in May. Contreras predicts a return to economic growth in July, fueled by an “ambitious” array of private sector investments worth bln of USD expected to commence in Q3, along with significant government spending plans.
Emerging-market bond bulls are wagering that the impending cessation of central bank interest-rate hikes will boost the asset class. However, the El Niño weather pattern in the Pacific Ocean could counteract this prediction. Markets most at risk include India, the Philippines, and Peru. According to some analysts, citing a model replicating past events, the pattern could raise inflation in Argentina and Brazil by an extra 0.75 pp and by 0.5 pp in India and the Philippines, potentially leading to stagflation.
Peru faces an unexpected technical recession amidst global growth. The economy shrank 0.5% in the first five months of the year, surprising economists and contrasting the government’s recovery narrative following political turmoil. Poverty levels have surged, with an additional million Peruvians in poverty compared to a decade ago. Despite this, economists predict the recession will be short-lived, with minor economic growth expected this year, supported by a robust mining sector, particularly Anglo American Plc’s USD 5 bln Quellaveco mine.
