Country Report Peru August 2017

Country Report Peru August 2017

  • August 2017 •
  • Report ID: 265691 •
  • Format: PDF

Outlook for 2017-21



  • The president, Pedro Pablo Kuczynski of the centre-right Peruanos Por el Kambio, faces resistance from the main opposition party, the right-wing Fuerza Popular (FP), which will hamper policymaking.
  • The government will retain and bolster the prudent policy framework that has underpinned Peru's rapid development over the past decade, although progress on passing legislation on structural reforms will be slow.
  • The Economist Intelligence Unit forecasts that real GDP growth will average 3.2% in 2017-21, notwithstanding a slowdown in 2019, when growth will ease in the face of a less favourable external environment.
  • The fiscal deficit will widen in 2017-18, to 2.9% of GDP on average (up from 2.6% in 2016), before narrowing to 1.3% of GDP by 2021. The public debt/GDP ratio will rise from 23.8% of GDP in 2016 to 28.9% in 2021.
  • Inflation will average 3.1% this year and fall within the 1-3% official target range in 2018-21, given moderate currency weakening and rising import costs. Occasional supply bottlenecks will lead to temporary inflationary spikes.
  • The currency will appreciate in 2017 before depreciating slightly in 2018-21. The Banco Central de Reserva del Perú (the central bank) will accumulate foreign reserves, aided by low inflation and a balance-of-payments surplus.
  • The trade surplus will remain stable in nominal terms, partly offsetting profit repatriation from foreign companies. The current-account deficit will average 1.7% in 2017-21.


Review



  • After tension flared in June, a meeting between Mr Kuczynski and Keiko Fujimori, the FP leader, took place on July 11th. Friction between FP and the government has calmed since then.
  • The main left-wing party, Frente Amplio (FA), has split in Congress. The FA bloc is now down to ten members, while ten rogue congressmen will act as a separate bloc (though they are legally forbidden from formally creating one).
  • GDP grew by 3.4% year on year in May, according to the national statistics agency. Growth in the first five months was 2% year on year. Growth in fisheries' yields drove the increase.
  • On July 13th the central bank cut its policy rate by 25 basis points for the second time this year. The rate now stands at 3.75%.
  • The trade balance registered a surplus of US$246m in May. The accumulated surplus in January-May was US$1.6bn. Mining output continues to be the main driver of export growth.


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