Over the past decade, Peru has been one of the region’s fastest-growing economies, with an average growth rate 5.9 percent in a context of low inflation (averaging 2.9 percent). A favorable external environment, prudent macroeconomic policies and structural reforms in different areas combined to create a scenario of high growth and low inflation.
As a result, the strong growth in employment and income have sharply reduced poverty rates. Moderate poverty (US$4 a day 2005 PPP) fell from 43 percent in 2004 to 20 percent 2014. Extreme poverty (US$2.5 a day 2005 PPP) declined from 27 percent to 9 percent over the same period.
GDP growth slightly recovered to 3.3 percent in 2015, with a 6-year minimum of 2.4 percent in 2014. Growth was driven by a strong accumulation of inventories and a recovery in exports. In contrast, investment continued to decline due to weak external economic conditions and slow execution of infrastructure projects at the local level. Private consumption decelerated due to deteriorating labor market conditions. After reaching a maximum of 4.6 percent at the beginning of the year, headline inflation has declined and stood at 2.9 percent in August 2016, just below the upper limit of its target range. The decline in inflation reflects weaker depreciation pressure of the domestic currency and the normalization of climatic conditions that had put pressure on food prices earlier.
In 2016, economic growth is expected to be similar to 2015 levels, gradually recovering to an average rate of 3.8 percent by 2017-2018. Over the next two or three years, large-scale mining projects are expected to begin production and increased private and public investment in infrastructure projects will support aggregate demand. Additionally, the country will continue to implement structural reforms to ensure confidence of private investors.
In 2016, growth will accelerate somewhat based on higher mining export volumes as several large mining projects have entered into production. Growth is projected to approach 4 percent in 2017 on the back of a recovery of investment driven by the implementation of several large public infrastructure projects. The higher domestic demand will offset the gradual slowdown in export growth as mining production reaches a new plateau.
On the external front, the main challenges that may have an impact on economic growth include:
- The decline in commodity prices, which is closely related to the global economic slowdown.
- A possible period of financial volatility associated with the expectation of higher interest rates in the United States.
On the domestic front, GDP estimates are vulnerable to the following:
- Policy uncertainty as the elected government faces a Parliament dominated by the main opposition party.
- The impact of El Niño on the real economy.
- A large share of the population remains vulnerable to shocks and could fall back into poverty.
Looking ahead, reducing this dependency and sustaining high and equitable growth in the medium to long term requires domestic policy reforms that increase the access to quality public services for all citizens and unleash economy-wide productivity gains, which would provide workers’ access to higher quality jobs, reducing informality.
Last Updated: Sep 30, 2016