Peru: Economy shows signs of stabilization in Q3 on boosted public spending
November 21, 2014
GDP in Q3 expanded 1.8% over the same quarter of last year, which was slightly above the 1.7% increase observed in Q2. The reading just beat market expectations of another 1.7% rise. Although by no means stellar, the result suggests that the slowdown in Peru may be bottoming out. Sequential data support this view; GDP in Q3 grew 0.5% over the last quarter, which followed the 0.1% increase observed in Q2. The growth was driven by a steep rise in public spending as the government attempts to halt the sliding economy and counteract declines in the external sector, which deteriorated significantly in Q3.
Domestic demand grew 3.1% in Q3, which was up from the 1.8% increase tallied in Q2. Private consumption expanded 4.0%, which was roughly in line with the 4.1% expansion tallied in Q2. Government spending expanded 9.3% annually in Q3, which was well above the 4.8% increase tallied in Q2 and marked the highest level in nearly two years. Total investment contracted 1.2% in Q3, although this was not as severe as the 3.7% decline in Q2. Total investment was dragged down by fixed investment, which fell 3.0% (Q2: -4.0% year-on-year).
On the external front, exports of goods and services in Q3 dropped a substantial 9.8% over the same quarter last year (Q2: -2.5% yoy). Weakening external demand for important export commodities such as copper continues to weigh on output. Meanwhile, imports fell 4.5% in Q3, which was down from the 1.6% contraction registered in Q2. Consequently, the external sector’s net contribution to overall economic growth declined from minus 0.2 percentage points in Q2 to minus 1.4 percentage points in Q3.
Author: Carl Kelly, Economist