Peru Total Consumption (ann. var. %)

GDP grows at softest pace since Q4 2020 in the fourth quarter amid social unrest

GDP growth lost steam in Q4, falling to 1.7% year on year, from 2.0% in the third quarter. High inflation and nationwide protests following an attempted coup by former President Pedro Castillo and his subsequent imprisonment weighed on activity. Q4’s reading marked the softest growth since Q4 2020.

Private consumption growth fell to 2.3% in Q4, marking the weakest expansion since Q4 2020 (Q3: +2.9% yoy), as higher inflation and political and social turmoil weakened consumers’ propensities to consume. Public consumption dropped at the sharpest pace since Q3 2022, contracting 10.3% (Q3: -6.2% yoy) amid shrinking pandemic-related health spending. Meanwhile, fixed investment growth improved to 2.4% in Q4, from the 1.3% expansion logged in the prior quarter. A faster expansion in public outlays due to higher spending by local governments more than offset a drop in private investment mainly caused by falling investment in the mining sector.

On the external front, exports of goods and services growth fell to 0.8% in Q4, marking the worst reading since Q1 2021 (Q3: +3.5% yoy), due to lower primary goods production. In addition, imports of goods and services growth waned to 4.2% in Q4 (Q3: +7.1% yoy) owing to weaker domestic demand.

Violent protests following the imprisonment of former President Pedro Castillo continue to affect both mining production and tourism, boding poorly for activity. Looking at 2023 as a whole, the economy should expand at a softer clip than last year. Still-elevated inflation, depleted savings and higher interest rates will weigh on consumer spending and investment, which will also suffer from the effects of protracted political uncertainty. Moreover, global economic headwinds and social unrest at the country’s main mines should restrain exports. Escalating social tensions pose the key downside risk.