Peru: GDP records softest decline since before pandemic in Q4
GDP declined at a softer rate in the fourth quarter of 2020, shrinking 1.7% on an annual basis, above the 9.0% year-on-year drop recorded in the third quarter. As such, the total contraction for 2020 clocked in at 11.1%, contrasting 2019’s 2.2% expansion and thus breaking a sequence of 21 years of uninterrupted growth.
The upturn in Q4 reflected a broad-based improvement in domestic demand. Public spending spearheaded the recovery, with government consumption growth picking up to 21.7% in Q4 from 5.1% in Q3. Moreover, fixed investment rebounded, growing 9.2% in Q4 and thus contrasting the 10.6% decrease recorded in the previous quarter. Lastly, private consumption dropped at a slower pace of 1.4% year-on-year in the fourth quarter, which marked the best reading since Q4 2019 (Q3: -9.0% yoy), likely helped in part by a gradual decline in domestic Covid-19 infections during the period.
Externally, exports of goods and services fell at a more moderate rate of 11.2% year-on-year in the fourth quarter, which marked the best reading since Q1 2020 (Q3: -16.7% yoy). In addition, imports of goods and services slid at a slower pace of 5.6% in Q4 (Q3: -20.8% yoy), reflecting the improvement in domestic demand during the period. As such, the external sector detracted 1.7 percentage points from the overall print, contrasting the 0.6 percentage-point contribution in Q3.
Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, economic growth slowed markedly to 8.4% in Q4 from the previous quarter’s 31.0% surge.
Regarding the outlook for 2021, Luis Ortega, economist at Creditcorp Capital, commented:
“We maintain our forecast that the economy will rebound 9% in 2021 due to: i) the recovery of the main trading partners, ii) higher capital flows to emerging markets, iii) a higher price of copper (near a 10-year peak currently), and iv) a larger additional stimulus from the Ministry of Finance and the Central Bank to mitigate the negative effects of the mobility restrictions implemented during Feb-21. However, two factors exert downward risks to our forecast. First, if the length and intensity of the second wave of Covid-19 is similar to the first wave, new restrictive measures cannot be ruled out. Second, the outlook for the April 11th general elections and the June 6th runoff is still quite uncertain.”