GDP in Peru

Peru - GDP

GDP growth decelerates notably in Q3

Economic growth decelerated considerably in the third quarter, owing to weaker domestic demand. Annual GDP growth in the quarter fell to 2.3%, which was the slowest pace of growth since Q1 2017 and significantly down from the second quarter’s 5.5% year-on-year expansion.

Fixed investment growth braked hard (Q3: +0.8% year-on-year; Q2: +8.4 yoy), weighed down by a sizable downturn in public investment and a considerable slowdown in business investment. Private investment, meanwhile, cooled due to a worsening performance of the manufacturing sector and reduced extraction of oil, gas and minerals. Less upbeat business confidence also likely took its toll. Moreover, public investment swung from a strong expansion in Q2 to a marked contraction, dragged down by declining spending on infrastructure from both the central government and from state-owned enterprises.

Private consumption was more resilient but nevertheless lost steam, increasing 3.3% year-on-year following Q2’s 4.5% expansion. Household spending was underpinned by healthy credit growth, rising wages and growing employment although a slight pick-up in inflation and softer consumer confidence restrained the scope of the expansion. Meanwhile, government consumption swung from a 0.4% increase in Q2 to a 1.8% year-on-year contraction in Q3, due to more constrained spending from the central government.

On the external front, although the sector’s contribution to growth improved from the previous quarter, it nevertheless remained negative. Exports dipped 0.6% in year-on-year terms in Q3, contrasting Q2’s 4.2% rise. Notable increases were recorded in exports of zinc and copper, while significant declines were recorded in foreign sales of gold and gasoline. Reflecting cooling demand for consumption and capital goods, imports increased a meagre 0.7% in Q3, well below the 6.6% expansion logged in Q2.

Economic growth is expected to regain steam in the coming quarters, underpinned by a recovery in infrastructure spending. Consumer spending should be fueled by employment growth, relatively low inflationary pressures and rising wages, while fixed investment will benefit from higher infrastructure expenditure and business spending. Moreover, public finances will remain in good health, providing the government fiscal room for maneuver if required.

Peru GDP Forecast

Panelists surveyed for this month’s LatinFocus report expect GDP to expand 3.9% in 2019, which is unchanged from last month’s projection. For 2020, the panel sees the economy growing 3.8%.