Peru Economic Forecast

GDP contracted in year-on-year terms in Q2 at a slightly sharper pace than in Q1. Destocking weighed on private investment, as companies lightened their warehouses following two quarters of stock accumulation. Additionally, adverse weather conditions and social unrest took a toll on activity. Available data suggests that GDP should return to growth in the current quarter. In July, the unemployment rate fell, wage growth outpaced inflation—which declined in July and August—and business sentiment improved, boding well for activity. Meanwhile, in late August, mining company Minsur announced an investment of at least USD 2 billion in the country over five years to scale up copper and tin production. In politics, in early September, President Boluarte reshuffled the cabinet for the second time in six months amid continued political instability.

Inflation came in at 5.6% in August, down from July’s 5.9%. Inflation will continue its downtrend ahead this year, curbed by previous monetary policy hikes and improved supply conditions. Upside risks stem from an expansionary fiscal stance and the threat posed to agricultural output by El Niño.