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Peru Business Forecast Report Q1 2014

Peru economic growth forecast to level off at 5.0% in 2014


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2014-01-09 09:56:02 - Peru Business Forecast Report Q1 2014 - a new country guide report on companiesandmarkets.com

While we expect real GDP growth to level off at around 5.0%, below its recent trend, significant mineral wealth, attractive investment opportunities at the sector level, and a growing consumer story underpin our view that Peru will remain one of the most dynamic economies in Latin America in the coming years.

Given our Asia Country Risk team´s expectation that Chinese real GDP growth will trend lower in the coming years, as the economy rebalances away from an investment-led growth model to one in which private consumption plays a larger role, we anticipate that Peru will continue to be hit hard through the trade and investment channels due to weaker Chinese demand, lower average metals prices, and more moderate capital expenditure plans

 

 

by major mining firms. Given these factors, we remain well below consensus on real GDP growth in Peru in the next few years, and we anticipate that these dynamics will precipitate a widening of the country´s current account deficit, place downward pressures on the budget balance, and result in a weaker currency.

Following the release of more lacklustre economic growth data, we have again downwardly revised our forecast for 2013 growth, from 5.1% to 4.8%. Our 2014 forecast remains unchanged at 4.9%.

Given the fact that our sluggish growth outlook for Peruvian exports is based on a number of external factors, including slow growth in China and normalisation of monetary policy in the United States, our forecasts would need to be revised if these developments do not unfold as anticipated.

Monetary authorities have already shown a readiness to cut rates to boost the economy, and if growth remains sluggish we may see further cuts over the course of 2014, posing a risk to our view for the benchmark policy rate to remain at 4.00%.

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