Peru: GDP growth picks up in Q3, led by stronger domestic demand
November 23, 2017
Peru’s economy picked up pace slightly in Q3, growing 2.5% in annual terms. The result, which was driven by stronger government spending and the first annual expansion in fixed investment in over three years, was up marginally from Q2’s 2.4%. A notable acceleration in domestic demand, which expanded 4.0% in Q3 compared to 1.3% in Q2, was the main driver of the improved result.
Fixed investment expanded 4.1% in Q3 on the back of accommodative fiscal and monetary policy, notably contrasting Q2’s 2.1% contraction. Public investment grew 4.6%, a significant turnaround from Q2’s 5.0% drop, as key infrastructure projects restarted after disruptions stemming from the Coastal El Niño phenomenon. Meanwhile private fixed investment increased 4.0%, contrasting Q2’s 1.5% drop, led by the mining and hydrocarbon industries. It benefited from a robust improvement in business confidence throughout the quarter and higher commodity prices.
Furthermore, a boost in the provision of public defense, education and healthcare drove the 5.9% expansion in government consumption, which was up significantly from the 2.2% increase recorded in Q2. Meanwhile, private consumption in Q3 grew 2.3%, broadly matching Q2’s 2.4% rise. Household spending was restrained by declining consumer confidence and a pick-un in inflation.
Despite higher commodity prices and a stable currency, the external sector dragged on growth. Growth in exports slowed considerably from 14.0% in Q2 to 4.1% in Q3, while imports increased 9.3% in both Q2 and Q3. As a result, the external sector’s contribution to growth swung from plus 1.1 percentage points in Q2 to minus 1.5 percentage points in Q3. The healthy expansion in imports was driven by robust demand for raw materials, intermediate products and capital goods.
Going forward, further gains in employment and wages should spur household spending, which has so far this year expanded only moderately. Moreover, the current expansionary fiscal and monetary stance should underpin both public and private consumption and investment, boosting economic activity. Lastly, the external sector should benefit from improved terms of trade and robust demand for metals.
Peru GDP Forecast
Panelists surveyed for this month’s LatinFocus report expect GDP to expand 3.9% in 2018, which is unchanged from last month’s projection. For 2019, the panel expects the economy to increase 3.8%.