Peru’s GDP forecast to go up in 2019 thanks to private investment, domestic consumption

Latin America

Peru’s GDP forecast to go up in 2019 thanks to private investment, domestic consumption

Thursday, December 27th 2018 – 21:59 UTC

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“The key risk would come from the trade war between the United States and China,” Surya said. “The key risk would come from the trade war between the United States and China,” Surya said.

Peru’s gross domestic product (GDP) is set to expand 3.7% this year and the next, boosted by the good performance of private investment and consumption, according to The Economist.

Abhijit Surya of the Intelligence Unit (UI) of The Economist for Peru has layed out such a projection for 2018, based on a higher level of private consumption amid better conditions in the labour market and private investment, especially in the mining sector.

However, “this greater growth was contained by the negative contribution of the external sector, since real imports advanced at a faster pace than exports, due to the high domestic demand and capacity limitations slowing the advance of traditional shipments,” according to Abhijit Surya, who added that this forecast largely reflects the weak results of the third quarter.

“Although a return of economic activity to normal levels was expected, after an extremely strong second quarter, the slowdown in growth between July and September was greater than we expected,” he said.

However, Surya said they expect a better result of economic activity in the fourth quarter of this year.

In the first quarter of 2017, the Peruvian GDP advanced 2.2%, while in the second, third and fourth quarters of last year, the economy grew 2.5%, 2.9% and 2.4%, respectively, according to information released by the National Institute of Statistics and Informatics (INEI).

In the first quarter of 2018 the Peruvian GDP registered a growth of 3.2%, while the second and third quarters of this year the Peruvian economy advanced 5.5% and 2.3%, respectively.

For 2019, The Economist expects growth to remain at the same level it would close in 2018 (3.7%), due to the solid macroeconomic foubdations of the current Peruvian administration.

“It is expected, once again, that private consumption and private investment will go very well,” Surya said. He added that investment in the mining sector will be significant, due to the deficit of the world supply of key metals such as copper.

“The mining investment also has a significant multiplier effect, since it generates employment in related industries,” the analyst pointed out.

However, public investmentment is expected to be weak next year, because the new local and regional authorities will spend more time evaluating and approving projects, which is called the learning curve. ”This is quite typical in the year after local elections (in 2015, public investment fell 9.5% and 2011 fell by 11%),“ Surya said.

He said there are also external risks that the Peruvian economy will face. ”The key risk (…) would come from the trade war between the United States and China, since both countries are Peru’s largest trade and investment partners.”

Economy and Finance Minister Carlos Oliva anticipated private investment will continue to accelerate by 2019 and will reach a growth of 7.5%, higher than that registered at the end of this year (4.7%) and in 2017 (0.2 %). He also estimated that private investment will reach a rate of 3.8% in the fourth quarter of this year, which marks a recovery of this variable since in the third quarter the expansion was only 1.4%.

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