GDP in Peru

Peru - GDP

Growth sinks to two-year low in Q1

GDP growth in the first quarter of the year fell to 2.3%, which was less than half Q4 2018’s 4.7% expansion and marked the slowest increase in two years. Weaker domestic demand and a more fragile external sector led the deceleration.

Domestic demand braked from a 3.5% expansion in Q4 to 1.7% growth in Q1. Fixed investment growth slackened dramatically, falling to 1.0% in annual terms in Q1 from Q4’s 5.4% year-on-year expansion, weighed down by plunging public investment in infrastructure from both the central and the local governments. At the same time, government consumption swung from a 2.2% increase in Q4 to a 2.5% contraction in Q1, due to shrinking spending by local governments. Private investment, however, gained some steam, supported by rising investment in the mining sector and favorable financing conditions. Moreover, private consumption continued to expand solidly (Q1: +3.4%; Q4: +3.8%), underpinned by strong credit growth, rising wages and growing employment in the private sector.

The weakening external sector, which contributed 0.6 percentage points to growth in Q1 following the 1.3 percentage-point contribution in Q4, was also behind the deceleration in the first quarter. Exports rose just 1.6% in Q1, following Q4’s 2.9% expansion. While exports of fishing products increased sizably, foreign sales of mining and energy fell considerably. Meanwhile, imports contracted 0.5% in Q1 following the sharper 1.8% contraction in the previous quarter, reflecting cooling fixed investment.

Growth is set to decelerate this year but should remain healthy nonetheless. Continued job gains and steady credit growth should underpin consumer spending. Moreover, solid growth in exports of commodities, positive business sentiment and rising infrastructure spending should support fixed investment. Lingering trade tensions and a weak Chinese economy, however, cloud the outlook.

Peru GDP Forecast

FocusEconomics panelists see GDP expanding 3.8% in 2019, which is unchanged from last month’s forecast, and 3.7% in 2020.