Peru Economic Outlook. December 2024

The Peruvian economy will grow 3,1% in 2024, 0,2pp more than expected in October. The revision mainly reflects the third quarter positive surprise. For 2025 we expect a 2,7% expansion, amid a challenging external context, but also when large infrastructure projects will begin construction.

Key points

• Key points:
• Our base scenario assumes that the new US administration will increase trade tariffs, especially on China, slowing down economic activity in both countries. In the US, inflation will rise, delaying monetary policy easing. In China, new stimuli will offer some economic growth relief.
• Fiscal revenues will improve in 2025 (economic activity recovering, high terms of trade, new taxes, extraordinary revenues), while public investment will lose steam. As a result, the fiscal deficit, currently around 4,0% of GDP, will reduce, trending downwards moving forward. However, that will not be enough in order to comply with fiscal rule ceilings. Gross public debt will reach 36% of GDP at the end of the forecasting horizon (2029).
• In 2025, with a PEN-USD short-term interest rate differential not so different to the current one, high external accounts surplus, but surely with an increase in FX defensive positions given the proximity of the domestic electoral process, the foreign exchange will end the year at a level similar to the previous year’s (range between 3,75 and 3,85 soles per dollar).
• Our base scenario considers that weather conditions will be relatively normal, economic slacks will ease gradually, and inflation expectations will remain anchored. This is consistent with inflation staying inside the central bank’s target range moving forward.
• The central bank will keep cutting its policy rate in the coming months, albeit without rush. We expect this process to finish before the end of next year’s second quarter, when the rate should reach a level we estimate as neutral (4,50%). Rate cuts timing will especially depend on financial conditions.

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