The economy slows in Q2, misses market expectations

GDP reading: According to a preliminary reading, GDP growth eased to 0.2% on a seasonally adjusted quarter on quarter basis in the second quarter, from 0.3% in the first quarter. This was half the growth that market analysts were expecting, driven by softer readings for the services, industrial and primary sectors. On an annual basis, economic growth improved to 2.2% in Q2, compared to the previous quarter's 1.6% expansion.

Drivers: The services sector grew 0.3% over the previous quarter in seasonally-adjusted terms in the second quarter, decelerating somewhat from the first quarter's 0.6% increase. In addition, the industrial sector’s expansion slowed to 0.3% in Q2 (Q1: +0.5% s.a. qoq). The primary sector contracted 1.7% in Q2, marking the worst reading since Q1 2023 (Q1: +1.7% s.a. qoq).

Panelist insight: On the outlook, Credicorp Capital analysts said: “In light of the weaker-than-expected performance in the 1H24 and a reduced anticipated contribution from investment for the rest of the year, we have revised our GDP growth forecast for 2024 downward to 1.9% from 2.2%. We caution that the outlook is contingent on the demand for manufactured goods and competitive conditions, which appear to have a downward bias.” Goldman Sachs’ Alberto Ramos said: “Going forward, real activity is likely to face headwinds from high rates, post-election policy uncertainty, a negative fiscal impulse, soft business confidence, and moderate external demand. On the positive side, household spending is likely to continue to benefit from still firm credit flows and a robust labor market backdrop (including solid formal job creation and generous minimum wage increases). Furthermore, private investment is likely to benefit from near/friendly-shoring dynamics.”

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