Peru Economic Outlook. First quarter 2022

Summary

After a 13.1% rebound in 2021, this year the economy will grow 2.3% in a context of sustained confidence weakness, withdrawal of economic stimuli and lesser external tailwinds, despite the progress in vaccination and the beginning of operations of new copper mines. For 2023, we expect a 3,0% expansion.

Key points

• Key points:
• Global activity will continue advancing in a relatively robust manner in the following quarters, but the impulse will lessen due to negative supply shocks and the withdrawal of monetary stimuli. Metal prices will lose ground partially.
• Our base scenario considers, on the sanitary front, that the current third wave of contagions will have a limited and transitory impact on activity, and then capacity constraints will resume their normalization. On the political side, a still complicated environment but with lower probability of an extreme scenario resulting in radical economic policies, implying that uncertainty and caution to spend will remain, but will lessen progressively.
• On the fiscal side, we anticipate a deficit of 2.9% of GDP in 2022, that will remain around 2.5% looking forward, taking gross public debt on a gradual ascension towards 40% of GDP in the medium term.
• The Fed will withdraw its monetary stimulus soon, but locally the perception of an ever more distant extreme political/economic scenario will continue to take hold, the Central Bank (BCR) will keep hiking its policy rate and the trade surplus will remain at high levels. In this context the exchange rate will close 2022 between 4.00 and 4.10 soles per USD and between 4.10 and 4.20 in 2023.
• The lower depreciation rhythm of the local currency and the anticipated decrease in the prices of raw materials in the following quarters will allow inflation, currently at 6.4%, to fall in the second half of 2022, but it won’t be enough to close the year within the BCR’s target range (3.4%), something that will only happen in 2023 (2.3%). Thus, the BCR will keep hiking its policy rate, from 3.0% to 4.5% as soon as the second quarter of 2022.

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