The political crisis worsened in Peru over the last two months. In the very short term, political instability should continue, and weigh on the economic outlook.
Peruvian GDP returned to its pre-crisis level thanks to the strong upturn in activity recorded in 2021. However, the country’s capacity to rebound further is limited and short-to-medium-term growth prospects are moderate. Firstly, inflation pressures are weighing on private consumption and disruptions in the value chains are hampering the export sector. Secondly, the continuing political crisis is dampening the investment outlook. In addition, public finances have deteriorated over the past two years. It is not so much the level of debt, which is still moderate, but its composition which is worrying and is making the country more vulnerable to changes in investor sentiment.
After a rebound over 13%, one of the highest growth rates in the region, we should see a major slowdown in Peru in the next two years. On one hand, inflationary pressures, social movements and the gradual withdrawal of support measures taken by the authorities during the pandemic will weigh on domestic demand.
Peru is one of the Latin American countries to have suffered most from the Covid-19 crisis. After a sharp contraction in Q2 2020, the recovery that began in Q3 has continued. This said, economic activity is unlikely to regain its pre-crisis level before the end of 2022. The economic contraction and the massive stimulus programme introduced by the government have hit public finances, but the deterioration is likely to remain manageable, for the short term at least. However, the deterioration of the political climate seen over the past few years is affecting the medium-term outlook.
Peru is a Republic (Republica de Peru) of South America. The Peruvian economy depends heavily on raw materials exports (60% of total exports). It is one of the countries that has suffered most from the Covid-19 crisis. The recession in 2020 was severe. Real GDP fell by 11.1% (after a 2.2% growth in 2019) and activity shrank in Q2 following strict and protracted lockdown measures. Relatively strong public finances allowed a massive support by the authorities, which helped to prevent an even more spectacular collapse in GDP. China has been the main destination for exports since 2014.
