2012-11-15 00:14:57 - Peru Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

A growing consumer base and robust mining and infrastructure project pipelines inform our view that Peruvian growth will be among the strongest in Latin America over the medium term. Domestic demand will become an increasingly important driver of growth in the coming years. As such, we believe the telecoms, utilities and financials sectors have significant long-term growth potential. We expect President Ollanta Humala´s administration to increase social spending over the coming years, leading to moderate nominal fiscal deficits. That said, our medium-term revenue outlook remains relatively bright on the back of rising exports and a growing consumer base.

Major Forecast Changes

Following strong economic data in the year to date, as well as indications that private consumption and fixed investment will

 

 

bolster economic activity more than we had previously expected in the next few years, we have revised up our 2012 and 2013 growth forecasts for Peru. We now forecast real GDP growth of 5.6% (from 4.8%) in 2012 and 5.2% (from 4.8%) in 2013.

Given a sharp deterioration in trade data in recent months, due in part to slowing economic growth in China, we have substantially revised our current account forecasts for Peru to reflect wider deficits in 2012 and 2013. We forecast Peru´s current account deficit to come in at 2.8% of GDP in 2012 (from 1.7% previously) and 3.2% in 2013 (1.5%). Although we expect the country´s financial account surplus to remain off its recent highs for the foreseeable future, we believe it will comfortably offset the current account shortfall.

While we maintain our view for Peru´s central bank to hold the policy rate at 4.25% for the remainder of 2012, we are now calling for 25 basis points of cuts in 2013. This is underpinned by our view for slower economic growth in Peru next year, due in part to the continued deceleration of China´s economy, as well as more moderate inflation. As such, we believe Peru´s central bank will be encouraged to step in to provide stimulus to the domestic economy next year.

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