Country Report Peru

Outlook for 2008-09

• Two years into his five-year term, Alan Garcia of the centre-left Partido Aprista Peruano (Apra) retains considerable popularity, although his approval ratings have fluctuated in recent months owing to rising inflation.
• Having gained the backing of the country's business sector, unlike in his ruinous first term as president (1985-90), Mr Garcia will continue to implement the investor-friendly policies of the past decade.
• Governability will be constrained by the ruling party's minority position in the legislature, where alliances are fragile, and will also face serious challenges stemming from high expectations of improved social conditions.
• Following real GDP growth of 9% in 2007, growth is forecast to remain strong in 2008-09, driven by rising real incomes, investment related to the Camisea natural-gas project and rising exports.
• Rising global inflationary pressures will mean that inflation will end 2008 above target. However, vigilant monetary policy on the part of the Banco Central de Reserva del Peru (BCRP, the Central Bank) will ensure that it remains relatively low, at 3.3%.

Monthly review

• Peru successfully hosted the fifth summit of EU, Latin American, and Caribbean leaders on May 16th and 17th.
• The national statistics agency estimated that the poverty rate fell by over 5% in 2007, to under 40%. This is in addition to a decline of 4.2% in 2006.
• Peru signed free-trade agreements with Canada and Singapore in May.
• The Ministry of Economy and Finance (MEF) released its multi-annual macroeconomic framework for 2009-11. The MEF forecasts average annual GDP growth of around 7% and average annual inflation of 2.1%.
• Real GDP expanded by 9.3% in the first quarter of 2008, higher than the full-year 2007 growth rate of 9%. Economic growth continued to be fuelled by double-digit domestic demand growth.
• Twelve-month consumer price inflation fell to 5.4% in May, down slightly from 5.5% in April. However, monthly inflation accelerated moderately in May, to 0.37% (from 0.15% in April).