Peru: Economic growth slows in Q3 on diminishing base effect
November 18, 2021
According to a preliminary reading, GDP growth eased to 11.4% year-on-year in the third quarter, from 41.9% in the second quarter. That said, Q2’s reading had been flattered by an extremely low base effect, while Q3’s reading came in 1.6% above the same quarter from 2019, indicating a continued improvement in economic activity.
The slowdown was broad-based, with growth in private consumption, public spending and fixed investment weakening. Private consumption growth moderated to 12.9% year-on-year in Q3 from a 30.7% expansion in Q2, while public consumption growth eased to 14.9% in Q3 (Q2: +30.4% yoy). Meanwhile, fixed investment growth fell to 25.4% in Q3, marking the weakest reading since Q4 2020 (Q2: +173.6% yoy), as the favorable base effect reduced in the quarter.
In the external arena, exports of goods and services increased 11.0% on an annual basis in the third quarter, which was below the second quarter's 53.1% expansion. In addition, growth in imports of goods and services slowed to 23.6% in Q3 (Q2: +44.9% yoy). Consequently, the external sector deducted 2.4 percentage points from the overall print, contrasting the 0.8 percentage-point contribution in Q2.
Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, economic growth gained traction, rising to 3.0% in Q3, contrasting the previous quarter's 0.1% fall. Q3's reading marked the fastest increase since Q4 2020.
Commenting on the outlook for growth, Diego W. Pereira, economist at JPMorgan, said:
“While political uncertainty and more relevant, regulatory uncertainty persists, the improvement in [business] confidence, together with the confidence vote for the new premier and her cabinet, and higher statistical carry-over, prompt a revision higher of 2022 investment and thus GDP. We revise our modal scenario for real GDP?to gain 2.6% yoy (from 2.0%, previously).”
José Luis Nolazco, analyst at CrediCorp Capital, is slightly more circumspect, commenting:
“We maintain our forecast that the economy will only grow by 2.0% in 2022. On the one hand, the Peruvian economy will enter with greater inertia to 2022 as a result of a stronger-than-anticipated rebound in 2021, but, on the other hand, the monetary environment looks more challenging than it was three months ago as a result of higher inflation that will lead the Fed (and other central banks, including the BCRP) to withdraw the monetary stimulus faster.”
Author: Stephen Vogado, Economist