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, from 55.6 percent to 21.8 percent between 2005 and 2015. It is estimated that in 2014 alone, 221,000 people escaped poverty in the country. Extreme poverty also declined dramatically, from 15.8 percent to 4.1 percent, during the same period.
After a deceleration in 2014, GDP growth recovered in 2015, from 2.4 percent to 3.3 percent, thanks to increased inventories (mainly copper) and exports (3.3 percent). Nevertheless, in an environment of lower business confidence, delayed implementation of some mining projects and sluggish activity in the real estate sector, private investment contracted by 7.5 percent. The inflation rate exceeded the target range (4.4 percent) given the devaluation of the local currency, which drove up electricity rates and real estate prices.
In 2016, economic growth is expected to be similar to 2015 levels and to gradually recovery to an average rate of 3.8 percent in 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.
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 economic slowdown in China, one of Peru’s main trading partners.
- 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:
- Delays in the implementation of public and private investment programs.
- The impact of El Niño on the real economy.
- The challenges associated with the capacity of the next government to continue implementing reforms to increase Peru’s productivity and competitiveness.
Looking ahead, major challenges will include achieving more sustainable economic growth and further strengthening linkages between growth and equity. To this end, the country must take into account the segment of the population that could fall back into poverty as a result of economic fluctuations, which would reverse the progress made over the past decade.
Last Updated: Apr 25, 2016