Peru Economic Outlook. First quarter 2020

Summary

We expect output to grow by 3,1% in 2020, a forecast which is similar to the one we made in October, while in 2021 economic activity would grow by 3,5%. The main drivers will be the normalisation of primary activities (mining) and public spending, to which a stronger private spending will be added next year.

Key points

• Key points:
• The way is paved for global growth to stabilise as a result of reduced trade tensions between the US and China, lower uncertainty about brexit, and ease monetary policies.
• Locally, economic activity and spending indicators suggest Peruvian output growth lost steam in 4Q19. As a result, we estimate GDP increased by 2,1% in 2019.
• In our base scenario we forecast output will grow 3,1% in 2020 and 3,5% in 2021, an acceleration supported by the recovery of primary sectors (mining production) and public spending, to which a stronger private spending will be added next year.
• On the fiscal side, we are considering a similar deficit path to the one recently announced by the Government. This implies the fiscal deficit trending down in the coming years and converging to 1% of GDP in 2024. Thus, fiscal consolidation has been loosened, but this avoids over-adjustment and does not affect the sustainability of public debt.
• Taking into account that our GDP and domestic demand forecasts are more conservative than the official ones, coupled with an absence of inflationary pressures, we expect an additional monetary policy rate cut before 1H20 ends, reaching 2,0%.

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