GDP in Peru

Peru - GDP

Economy weakens in Q4, dragging full-year growth to a 10-year low

Economic growth slumped to 1.8% year-on-year (yoy) in the fourth quarter (Q3: +3.2% yoy), weighed on by cooling domestic demand. The fourth quarter’s result brings full-year growth for 2019 to 2.2%, down from 2018’s 4.0% expansion and marking the softest reading since 2009.

Slower increases in private and public consumption, as well as a downturn in private investment, was behind the slowdown in domestic activity in the fourth quarter (Q4: +2.0% yoy; Q3: +3.9% yoy). Notably, fixed investment swung to a 1.5% year-on-year contraction (Q3: +5.9% yoy), due to weaker private investment in the non-mining sector, while public investment slumped largely on falling investment from regional governments. Furthermore, household spending lost traction (Q4: +3.0% yoy; Q3: +3.3% yoy)—amid slower consumer credit growth and a rising unemployment rate—while government spending growth more than halved to 3.2% (Q3: +6.5% yoy).

The external sector subtracted 0.1 percentage points from growth in Q4, after subtracting 0.6 percentage points from growth in Q3. Exports growth accelerated to 1.3% in Q4 (Q3: +0.6% yoy), while imports growth cooled to 1.8% (Q3: +2.9% yoy) on weaker domestic demand.

The economy looks set to gain steam this year, benefiting from a firmer domestic economy and a healthier external sector. Looser monetary and fiscal conditions should underpin the expansion, while modest inflation and healthy wage growth will likely sustain household spending. Protracted political uncertainty could weigh on investment, however.

FocusEconomics panelists see GDP expanding 3.2% in 2020, which is unchanged from last month’s forecast, and 3.6% in 2021.