After a rapid post-pandemic recovery, GDP grew by 2.7 percent in 2022, driven by domestic demand and exports. Government cash transfers and exceptional withdrawals from private pension funds stimulated domestic demand. Exports increased thanks to the elimination of health restrictions and the beginning of production of the Quellaveco mining project. GDP growth in 2023 will reach an estimated 2.4 percent, led by primary sectors and services. The pace of growth is expected to increase slightly over the next few years, to approximately 2.8 percent, assuming a gradual improvement in business confidence and renewed investment in large-scale mining projects.
Inflation has been on the rise since 2021, mainly reflecting the global increase in food and energy prices and the domestic demand stimulus to support the recovery following the health crisis, and, more recently, to the temporary interruption in local distribution chains. To curb inflation, the Central Bank tightened its monetary policy, raising the reference policy rate to 7.75 percent in January 2023, the highest rate in over two decades. At the same time, the government launched a one-time cash transfer to alleviate food insecurity, which was distributed in late 2022 and early 2023.
Nevertheless, poverty reduction has been slow. The 2022 poverty rate remained 3 percentage points above that of 2019. Higher inflation and the sluggish recovery of the labor market affected vulnerable populations and the middle class alike. Nearly 700,000 formally middle-class Peruvians were at risk of poverty and another 700,000 slipped from a vulnerable situation to poverty.
Fiscal policy stabilized quickly following the substantial pandemic-related stimulus. The annual fiscal deficit continued trending downwards and stood at 1.6 percent of GDP in 2022, compared with 2.5 percent in 2021. The reduction was largely driven by the increase in fiscal revenues, associated with recovery of economic activity and high mineral prices. In 2023-2025, it is estimated that the fiscal deficit will fall below 2 percent and public debt will remain stable at 34 percent of GDP.
The external debt reached 4.3 percent of GDP in 2022 owing mainly to higher mining company profits. Over the next few years, the foreign debt gap is expected to gradually decline in a context of increased exports and lower transportation costs. It is estimated that the inflow of long-term capital, mainly foreign direct investment, will help close this gap, as has been the case in previous years.
Overall, Peru's macroeconomic fundamentals remain strong. Public debt as a percentage of GDP is low, international reserves are sizeable and the Central Bank is reliable. Important structural challenges for the Peruvian economy include reducing the relative size of the informal sector, which employs three-quarters of workers in low productivity jobs, and improving the quality of government services such as education, health and water. Overcoming these challenges is critical for driving Peru’s long-term growth and poverty reduction.
Last Updated: Apr 10, 2023