Peru: Economy decelerates again in Q2 on weaker exports and falling investment
August 25, 2014
GDP increased 1.7% over the same quarter of last year in Q2, which was significantly down from the 5.1% increase observed in Q1. The reading was just below market expectations of a 1.8% rise, but marked the weakest expansion since Q3 2009. Sequential data confirm the weakness of the economy in the second quarter. GDP growth was flat over the last quarter in Q2, which followed the 0.2% contraction observed in Q1. The external sector continued to deteriorate, although falling investment on the domestic side of the economy also contributed to the deceleration.
Domestic demand grew only 2.2% in Q2, which was down from the 4.0% increase tallied in Q1. Private consumption expanded 4.2%, which was down from the 5.1% expansion tallied in Q1. Government spending expanded 4.9% annually in Q2, which was half the 9.8% increase tallied in Q1. Total investment slumped to a 2.6% contraction in Q2, down from the 0.5% decline in Q1, which represented the weakest expansion since Q4 2009. Total investment was dragged down by fixed investment, which plunged in Q2, having contracted 4.0% (Q1: +1.8% year-on-year).
On the external front, exports of goods and services dropped a substantial 5.1% over the same quarter last year in Q2 (Q1: +3.0% yoy). Weakening external demand for important export commodities such as copper is dragging on output. Meanwhile, imports fell 2.1% in Q2, which was down from the 0.7% contraction registered in Q1. Consequently, the external sector’s net contribution to overall economic growth swung from plus 0.9 percentage points in Q1 to minus 0.6 percentage points in Q2.
Author: Carl Kelly, Economist