Peru: Economy expands at a more moderate pace but recovery remains strong
November 26, 2010
In the third quarter, gross domestic product (GDP) expanded 9.7% annually, according to Central Bank data. The reading was below the revised 10.2% year-on-year expansion observed in the second quarter (previously reported: +10.1% yoy) and overshot market expectations, which had the economy growing 9.0%. The third quarter reading represented the second fastest pace seen so far this year. Strong growth in the third quarter was propelled by the domestic sector. Total consumption grew a strong 6.6% annually, fuelled by robust private consumption (Q3: +6.2% yoy). In addition, gross fixed investment posted another strong quarter, growing 26.8% annually. Finally, there was an upward shift in inventories, which contributed 3.2 percentage points to overall economic growth. Exports of goods and services accelerated in the third quarter and grew 7.0% annually, which was well above the 0.2% increase tallied in the second quarter. Imports also rose sharply, expanding 34.7% in the third quarter (Q2: +23.0% yoy), which represented the fastest annual expansion in over 15 years. As a result, the net contribution from the external sector to overall growth fell from minus 3.8 percentage points in the second quarter, to minus 5.3 percentage points in the third. At the sector level, the third quarter expansion reflected strong but slower growth in the three main sectors of the economy. Agriculture grew 3.0% year-on-year, which almost halved the 5.8% expansion observed in the second quarter. Industry expanded 9.1% in the third quarter, which was below the 10.6% annual increase registered in the second quarter. In late November, Finance Minister Ismael Benavides stated that economic growth could reach 9.0% in the final quarter. In addition, the Central Bank revised its growth estimate for this year up to 8.7% from the September growth estimate of 8.0%. For 2011, the Bank sees the economy expanding 6.0%.
Author: Ricardo Aceves, Senior Economist