GDP in Peru

Peru - GDP

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.”

FocusEconomics panelists project the economy to grow 9.5% in 2021, which is unchanged from last month’s forecast, and 4.2% in 2022.