Peru Economic Outlook. First Quarter 2021

Summary

The Peruvian economy will grow around 10% in 2021, largely due to a “rebound effect”, but also supported by the favourable external environment and despite both regulatory and electoral uncertainty. In 2022, when the local vaccination process has been broadly deployed, an expansion of 4.5% is expected.

Key points

• Key points:
• Even though the increase in coronavirus infections affected global growth in the fourth quarter of 2020 and will probably continue to do so at the beginning of this year, the vaccination process has begun in the main economies, which will favour global output growth, especially in the second half of the year. Along with broad economic stimuli, this will continue to support metal prices and capital inflows to emerging markets. The external environment is relatively favourable for Peru.
• The macroeconomic base scenario incorporates, on the local side, eventual spikes in virus infections. However, it also considers that mobility restrictions that would be implemented in order to contain them will be focalised, so that the economic impact will be relatively limited.
• Our forecasts include heightened uncertainty associated with both regulatory issues and the electoral process, in particular in the first half of the year, affecting private sector spending decisions. In spite of this, the favourable international context and the natural rebound of the Peruvian economy after its steep decline in 2020 (-11,5%), which we estimate will contribute with around eight percentage points to this year's growth rate, lead us to expect a 10% GDP expansion in 2021.
• On the fiscal side, we estimate that the deficit will recede, ending 2021 somewhat below 5% of GDP (8,9% in 2020). As a result, the gross public debt will temporarily remain at a level equivalent to 35% of GDP. Stabilising it below 40% will require the next government administration to implement measures in order to increase tax collection.
• The Central Bank has room to keep stimulating the economy through its monetary tools. In this context, we expect the policy rate to remain at 0,25% until mid-2022.

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