Peru: GDP growth picks up notably in Q2
August 24, 2018
Economic growth accelerated considerably in the second quarter, coming in at 5.4% in annual terms. The reading marked the fastest pace of growth since Q4 2013 and was up from 3.1% in the first quarter. The second-quarter acceleration was primarily driven by stronger domestic demand.
Fixed investment expanded a stellar 8.6% in annual terms in Q2 on the back of rising private and public investment, picking up pace from Q1’s solid 5.4% increase. Private investment rose at the fastest clip in five years, propelled by improving terms of trade—particularly of mineral exports—and increasing business confidence. Public investment also gained steam, buoyed largely by a ramp up in spending on road infrastructure.
Similarly, private consumption expanded a robust 4.5% year-on-year, accelerating from the 3.2% increase recorded in Q1. Household spending was underpinned by healthy credit growth, rising employment and stronger consumer confidence. Meanwhile, government consumption grew a soft 1.1% year-on-year in Q2, moderating from Q1’s 3.2% rise.
On the external front, the sector’s contribution to growth improved from the previous quarter; nevertheless, it remained negative. Exports climbed 3.2% in year-on-year terms in Q2, broadly unchanged from Q1’s 3.1% rise. Reflecting still-healthy demand for capital goods, imports increased 6.3% in Q2, slightly below the 7.4% expansion logged in Q1. As a result, the external sector’s contribution to growth improved from minus 1.0 percentage point in Q1 to minus 0.6 percentage points in Q2.
Economic growth is expected to remain robust in the coming quarters, underpinned by solid domestic demand. The recent minimum wage hike, modest inflation and rising employment are seen supporting private consumption, while low borrowing costs and healthy credit growth should propel capital spending ahead. The main downside risk to the outlook stems from political instability, however.
Peru GDP Forecast
Panelists surveyed for this month’s LatinFocus report expect GDP to expand 3.8% in 2018, which is up 0.2 percentage points from last month’s projection. For 2019, the panel also sees the economy growing 3.8%.
Author: Javier Colato, Economist