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Peru Economic Activity July 2021

Peru: Economic activity growth continues downward trend in July

Economic activity increased 12.9% in year-on-year terms in July, which was a deterioration from June’s 23.4% increase, but it still marked the fifth month of double-digit activity growth. July’s slowdown was largely due to a weaker base effect, with the contraction in activity in July 2020 significantly smaller than those recorded in April–June 2020. Nevertheless, the economy grew around 1.0% compared with June 2019, hinting at slowly-improving underlying dynamics. Looking at the breakdown by sector, weaker growth in retail, transport, construction and mining drove the lower overall reading this month.

On a monthly basis, economic activity rose at a softer pace of 1.0% in July (June: +1.7% mom), the worst result since February. Meanwhile, the trend improved significantly, with the annual average growth of economic activity coming in at 8.3%, up from June’s 6.1%.

Looking ahead, August is likely to see another reasonable rise in activity, although the favorable base effect will once again reduce. Meanwhile, the heightened uncertainty around President Castillo’s tumultuous first months in office, will have likely weighed on activity during August.

Commenting on the outlook, Diego W. Pereira, economist at JPMorgan, stated:

“In our base case scenario we have another leg of weakness in H2 2021, stemming from a negative shock on private capex associated with lingering political uncertainty. Indeed, despite the still expansive terms of trade shock, we expect private fixed income to contract in H2 2021, affecting the speed of the economic recovery even if public sector capex enjoys a renewed push. On top of that, real labor income remains subdued on inflation acceleration, and the risk of a new Covid wave cannot be discarded.”

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