Country Forecast Peru June 2018 Updater

Country Forecast Peru June 2018 Updater

  • June 2018 •
  • Report ID: 1697292 •
  • Format: PDF


  • The president, Martín Vizcarra of the centre-right Peruanos Por el Kambio, assumed office in March after his predecessor, Pedro Pablo Kuczynski (2016-18), resigned amid corruption allegations. Although political fragmentation will impede progress on structural reforms, the government will generally maintain a pragmatic approach to macroeconomic manage-ment and will not make radical changes to the current orthodox policy framework. An improve-ment in political stability will mean that Mr Vizcarra will serve out his term, ending in 2021.
  • The government is likely to face challenges in the form of sporadic outbreaks of social unrest over extractive projects, as well as rising urban crime, drug-trafficking, and potential violence perpetrated by the remnants of Sendero Luminoso, a terrorist group that was largely defeated by 2000.
  • High levels of corruption and institutional inefficiencies will weigh on the business environ-ment and administrative effectiveness, and will sustain public dissatisfaction with the political establishment. The broad reach of investigations into allegations of corruption will exacerbate political uncertainty, as there is a risk that members of both the government and the opposition will be implicated.
  • The economy will expand by 3.8% per year on average in 2018-22. Although among the fastest rates in the region, this is well below the highs of the past decade, when annual GDP growth often exceeded 6%. A slowdown in the US will curb GDP expansion in 2020. However, improved external conditions and more dynamic domestic demand will lift growth in 2021-22.
  • Despite low inflation, rising copper output, prudent fiscal policies and a manageable current-account deficit, Peru will remain vulnerable to fluctuations in external demand and commodities prices.
  • Population growth will slow slightly in 2018-22, but the labour force will continue to expand more rapidly than the overall population. The formal economy, despite expanding firmly in recent years, will struggle to absorb new entrants into the labour market, thereby sustaining a substantial informal sector, which will have a negative effect on productivity growth.
  • Peru is a fairly small (but growing) market, and opportunities will remain restricted by relatively low purchasing power, as well as high levels of poverty. Nonetheless, two decades of strong economic growth have fuelled the emergence of a growing middle class, particularly in the capital, Lima. This will continue to support growing consumption levels in 2018-22.






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