Peru: GDP growth accelerated in Q2 thanks to stronger domestic demand
August 24, 2017
Peru’s economy accelerated in the second quarter of the year as the adverse effects of floods and spillovers from the Odebrecht corruption scandal—which damaged confidence and caused growth to plummet to the lowest rate in two years in Q1—had a diminished impact. In Q2, GDP grew 2.4% in annual terms, up from Q1’s 2.1%.
A rebound in domestic demand, which expanded 0.8% in Q2 compared to Q1’s 1.1% contraction, was the key element in brightening up the economic terrain. Notably, the rate of contraction in public consumption and fixed investment eased considerably from the previous quarter as key infrastructure projects, halted previously due to the “Coastal El Niño” phenomenon, were unblocked. Public investment contracted 5.7%, a significant improvement from Q1’s 16.4% drop, while fixed investment contracted by less than half, declining 3.3% in Q2 compared to 7.2% in Q1. Furthermore, a boost in the provision of public education and health softened the shrinkage in government consumption, which decreased 1.6% following the 9.4% contraction recorded in Q1. Meanwhile, private consumption in Q2 was unchanged, growing at Q1’s 2.2%.
Although the external sector remained resilient, Q2’s performance fell short of Q1’s as export growth moderated to 11.2% from 13.1% in Q1. Nevertheless, the healthy expansion in exports was driven by robust growth in mining, fishing, and oil and natural gas sales abroad. Meanwhile, imports surged, rising 4.5% from a meagre 0.5% expansion in Q1.
On 24 August, Peru’s Council of Ministers approved the Multiannual Macroeconomic Framework (MMM) 2018–2021, which sets out the economic agenda for the next four years, prioritizing public investment in 2018. It forecasts the economy growing 4.0% in 2018. The current expansionary fiscal stance should lend support to economic activity and both public and private consumption, with the aim of bolstering growth to at least close to the government’s projected growth of 2.8% this year.
Author: Nihad Ahmed, Economist