Country Report Peru December 2008

Outlook for 2009-10

• In the remainder of his term, the main challenge for the president, AlanGarcia, will be to maintain stability in a country where deep social and regional divisions are contributing to growing political tensions.
• The government's attempts to deliver on pledges of improved social conditions will be hindered by weak implementation capacity; this will boost the appeal of the opposition ahead of the 2011 presidential election.
• Policymakers are relatively well placed to mitigate the damage to the domestic economy by the global financial crisis, owing to Peru's sound public finances and a comfortable cushion of international reserves.
• Economic growth will slow to a still-robust 4.6% in 2009 as external demand weakens. Growth in 2010 will rebound to 6.1% as US demand begins to recover andtogether with new investmentboosts export volumes.
• The Central Bank will continue to intervene in the foreign exchange market in order to prevent an excessive weakening of the nuevo sol against the USdollar.
• Despite vigilant monetary policy and sharply slowing demand, consumer price inflation will remain above the official target of 1-3% in 2009; we expect inflation to fall back within the target range by mid-2010.

Monthly review

• Peru hosted the 16thannual Asia Pacific Economic Co-operation (APEC) summit in Lima in November; it secured a number of important trade agreements at the summit.
• Despite slumping approval ratings, Mr Garcia publicly confirmed in November that he would like to run for a third term as president in 2016.
• The non-financial public sector (NFPS) recorded a fiscal surplus of 1.5% of GDP in the third quarter of 2008, 22% below year-earlier levels, as a result of higher public investment, which rose by around 57% year on year.
• Real GDP growth reached 9.9% year on year in September, pushing up third-quarter growth to 9.5%. In the nine months to September the economy expanded by 10.1%.
• Monthly inflation eased in November, but annual inflation remained at its highest level in more than a decade. Consumer prices rose by just 0.31% during the month of November, down from 0.61% in October.
• Continued strong domestic demand and sharply falling minerals prices have severely weakened Peru's external accounts in recent months. In September the trade balance registered its first deficit since April 2003.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;15;60;79
NAICS Code: 336;23;52;71