Peru Economic Outlook. June 2023

Output would grow by 1,6% in 2023 and by 2,6% in 2024. Economic activity decline in the first quarter of the year and the deterioration of Coastal El Niño phenomenon forecasts, suggesting a more intense and long-lasting event (until early 2024), lead us to revise GDP growth downwards (-0,3pp this year and -0,4pp next).

Key points

• Key points:
• Global economic activity is expected to slow down in the coming quarters amid high inflation and interest rates. We believe world output growth will reach 2,9% in 2023, 0,2pp higher than in our previous March forecast, mostly due to positive incoming data. However, we anticipate that the lagged impact of tighter monetary and credit conditions will take a higher toll in 2024, when global GDP growth is now expected to reach 2,9%, 0,3pp lower than in our previous forecast.
• On the fiscal front, we expect a deficit equivalent to 2,4% of GDP in 2023 and around 2,0% from then on, a path that is consistent with gross public debt not far from 34% of GDP in 2023 and 2024 and closer to 36% in 2028.
• The domestic currency will tend to weaken in the second half of the year as the positive PEN-USD interest rate differential goes down and with it the attractiveness of local currency assets. Besides, the moderation of global economic growth will likely induce risk aversion to increase. We expect the foreign exchange to end the year in a range between 3,70 and 3,80 soles per dollar.
• We believe inflation will fall faster in the coming months as base effects kick in and some supply shocks vanish. However, it should end 2023 above the central bank’s target, around 4% YoY.
• We do not expect a policy rate normalisation cycle to begin in the very short term despite economic activity weakness and the current tightness of the monetary stance. This would begin when the Fed has paused, inflation is closer to the target range, in sharp decline, and inflation expectations are not far from 3%, a scenario that is more likely to materialise in the fourth quarter of 2023.

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