Country Report Peru February 2009

Outlook for 2009-10

• Social unrest is set to increase in the coming year. Administrative inefficiencies and political fragmentation will impair the effectiveness of policies aimed at mitigating the impact of the global economic downturn.
• 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 inflicted on 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 3.1% in 2009 as external demand weakens sharply. Growth in 2010 will rise to 4.1% as US demand begins to recover and—together with new investment—boosts export volumes.
• Despite 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.
• Following the deepening of the global credit crisis and global recession in 2009, we expect the nuevo sol to end 2009 at Ns3.40:US$1 and 2010 at Ns3.48:US$1.

Monthly review

• The government of Alan Garcia has suffered another embarrassing public scandal, this time involving the illegal wiretapping of public officials.
• With the 2011 presidential election on the horizon, several prospective candidates have emerged. However, the field remains fragmented, with only three candidates enjoying over 10% support.
• In an effort to revive economic growth, on February 5th 2009 the Central Bank cut its benchmark rate by 25 basis points to 6.25%, the first cut since November 2003, ending a tightening cycle that began in November 2007.
• Falling global minerals prices have continued to impact negatively on the fiscal accounts. In December corporate tax collections fell by 19.4% year on year in real terms; individual income tax collections were also sharply lower.
• Twelve-month consumer price inflation decelerated to 6.5% in January, down from 6.7% in December. Monthly inflation fell to 0.11% in January, the lowest monthly increase since November 2007.
• Merchandise imports totalled US$28.4bn in 2008, up 45% year on year from US$19.6bn in 2007; as a result, the trade surplus shrank by 62%, from US$8.4bn in 2007 to US$3.2bn in 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;49;10;37;47
NAICS Code: 52;22;212;336;48;11