Peru Pestle
Country report PERU
Summary Now that the worst of the economic crisis is over, the balance can be made up for Peru as well. GDP growth will fall to 1% in 2009, a steep drop from the 9.8% registered in 2008. However, in comparison to its peers, this can be considered a good result. Monetary and fiscal stimuli have supported growth so far. However, with regard to the fiscal stimulus, the bottom of the treasury chest is in sight. On the back of higher spending and falling revenues, the budget deficit will deteriorate sharply to -3.4% of GDP this year. Inflation, however, is not a concern at this time, as the contraction of domestic demand and investment will drive down inflation to 3.2% by the end of this year. However, Peru continues to face structural impediments to growth. Exports are recovering, with demand from Asia being an important driver, but remain hinged on primary exports. As exports are growing more rapidly than imports, the current account will improve to a deficit of 0.6% of GDP. The downside is that the currency will appreciate as a result. This hurts trade and hampers the recovery. With regard to its external solvency, Peru is in a good position. Foreign debt is low and the level of FX-reserves is still high at USD 28bn. On the political front, President Alan García is losing popularity and authority on the back of the continuing social opposition by part of the population. His approval rating has dropped to 20% and it will be a difficult task to regain popularity before the 2011 elections. A rapid economic recovery would make this task easier. Things to watch: • • • • Shape and speed of economic recovery Deteriorating fiscal situation Currency appreciation Political environment in face of public unrest Erwin Blaauw Country Risk Research Economic Research Department Rabobank Nederland P.O.Box 17100, 3500 HG Utrecht, The Netherlands +31-(0)30-21-62648 E.R.Blaauw@rn.rabobank.nl
Rabobank Economic Research Department Page: 1/8
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Summary Now that the worst of the economic crisis is over, the balance can be made up for Peru as well. GDP growth will fall to 1% in 2009, a steep drop from the 9.8% registered in 2008. However, in comparison to its peers, this can be considered a good result. Monetary and fiscal stimuli have supported growth so far. However, with regard to the fiscal stimulus, the bottom of the treasury chest is in sight. On the back of higher spending and falling revenues, the budget deficit will deteriorate sharply to -3.4% of GDP this year. Inflation, however, is not a concern at this time, as the contraction of domestic demand and investment will drive down inflation to 3.2% by the end of this year. However, Peru continues to face structural impediments to growth. Exports are recovering, with demand from Asia being an important driver, but remain hinged on primary exports. As exports are growing more rapidly than imports, the current account will improve to a deficit of 0.6% of GDP. The downside is that the currency will appreciate as a result. This hurts trade and hampers the recovery. With regard to its external solvency, Peru is in a good position. Foreign debt is low and the level of FX-reserves is still high at USD 28bn. On the political front, President Alan García is losing popularity and authority on the back of the continuing social opposition by part of the population. His approval rating has dropped to 20% and it will be a difficult task to regain popularity before the 2011 elections. A rapid economic recovery would make this task easier. Things to watch: • • • • Shape and speed of economic recovery Deteriorating fiscal situation Currency appreciation Political environment in face of public unrest Erwin Blaauw Country Risk Research Economic Research Department Rabobank Nederland P.O.Box 17100, 3500 HG Utrecht, The Netherlands +31-(0)30-21-62648 E.R.Blaauw@rn.rabobank.nl
Rabobank Economic Research Department Page: 1/8
Author:
Contact