EcoTV Week

Peru: tempered economic outlook

07/08/2022

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.

 

Transcript

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.

On the other hand, the slowdown in global demand the deterioration of terms of trade, largely due to geopolitical shocks, and the deregulation of value chains will weigh on the exporting sector. In the medium term, growth prospects have deteriorated. The level of activity increased but did not exceed its level of 2019.The rebound capacity is limited. The deep recession in 2020 has exacerbated the structural weaknesses of the economy and deteriorated the quality of job market.

Above all, political tensions that have been persisting for several years weigh on growth and investment prospects which had already slowed down way before the beginning of the crisis. For the moment, there is no sign of major economic imbalances. But it is unlikely that the political crisis will be resolved in the short term. It will weigh on domestic and foreign investment prospects and on growth.

Above all, it is unlikely that the president will achieve to implement the huge fiscal reform he had promised. The risk linked to a slippage in public finances has considerably increased these last two years. The debt, still being moderate, reaches today 35% of GDP. It was at 25% of GDP at the end of 2019. More than anything, the main concern remains the deterioration of profile. The sudden increase has fostered an increased reliance on foreign investors. Non-resident investors do hold 50% of the debt. The other half is denominated in currency. Each of these two indicators only represented 30% of the debt in 2019. The country is much more vulnerable in case of turmoil in financial markets.

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