Growth slows in first quarter

4 June 2017

Peru’s growth rate has followed a downwards path in the last few months. If we take March 2017 GDP and compare it with March 2016, growth was a mere 0.7% according to figures just published by the Central Bank; if we take the first quarter of 2017 and compare it with the same period last year, the growth rate is down to 2%.

As recently as last August, the month-on-month growth rate was running at over 5%.

The reasons for the slowdown are not hard to find. The floods that affected Peru in the first quarter have played a major role, as has the suspension of major infrastructure projects like the Southern Peru gas pipeline for which Odebrecht was the lead contractor. Agricultural output was down 4.3% in the first three months (year-on-year), while construction activity dived a full 5.3%.

The pattern of growth was still sustained mainly by the mining sector, for which output rose 4.1%, but even this growth performance was sharply lower than in recent months and actually turned negative (-2.7% in March).

The government’s official forecasts for growth in 2017 have slipped too. No longer does the Ministry of Economy and Finance confidently predict that Peru’s GDP will grow by over 4.5% this year. At its latest reckoning it was forecasting 3%. But even this is well ahead of most non-official predictions, most of which vary between 1% and 2%.

Whether or not the spending on reconstruction will come to the rescue this year is far from clear. It will take time for investments to materialise and still longer for their multiplier effects to kick in. It is probable that the positive effects will only make themselves felt in 2018.

On the domestic front, the data make for rather dismal reading, with domestic demand down by 1% in the first quarter compared with the same months in 2016.

Foreign investment, meanwhile, has fallen sharply in recent years, mainly because of the decline in minerals prices. The government is concerned to rally positive opinion in foreign markets, convincing potential investors that Peru is still a good bet. To that end, both Alfredo Thorne, the minister of economy and finance, and Julio Velarde, president of the central bank, were in New York last week, urging businessmen to invest.

Although government officials like to talk up the growth forecasts, the claim that Peru will be among Latin America’s fastest-growing economies in 2017 is sounding more and more like hollow rhetoric.

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    The Peru Support Group exists to promote social inclusion, sustainable development and the observance of human rights in Peru. To that end the PSG highlights shortcomings in observance of established norms, whether international or local in nature, in its research, advocacy and publications. In so doing, it underscores the relationships that exist within the political system, how institutions work, and the effectiveness of policies that aim to reduce poverty and inequality within the context of sustainable development.

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