Peru Economic Outlook. June 2024

Output will grow 2,9% this year (previous forecast: 2,7%), supported by a new pension funds withdrawal. Sectors affected by weather anomalies in 2023 will recover and non-primary sectors too thanks to increased private spending. In 2025, once the impact of pension funds withdrawals is exhausted, growth would reach 2,7%.

Key points

• Key points:
• Global economic growth will moderate in the remainder of the year and will recover somewhat in 2025. The Fed will wait longer than anticipated to begin its easing cycle: demand will likely lose strength, favouring disinflation and rate cuts.
• As of end-2023, the fiscal deficit has increased by somewhat more than 1pp of GDP, to 3,9%, due to lower revenues, explained in turn by economic activity weakness and the deferral of some tax payments. These factors will be reversed in the remainder of the year. We expect the deficit to close 2024 at around 2,5%, tending to 2% going forward
• We expect the USDPEN to end the year at a level pretty much similar to the one it has now, in a range between 3,75 and 3,85 soles per dollar. Even though the sol-dollar interest rate spread will reduce somewhat over the next few months and FX volatility due to the US elections cannot be ruled out, the external accounts surplus remains strong. In 2025, with the sol-dollar interest rate spread recovering, the foreign exchange will end between 3,70 and 3,80.
• We expect that in the coming months inflation will remain around its 2,0% current level (May) given the slack in the economy and assuming that weather conditions will be relatively normal. However, towards the end of the year, base effects will kick in, driving inflation up and closing 2024 around 2,6%. The forecast for 2025 is 2,4%.
• The Central Bank has been cutting its policy rate since September. It currently stands at 5,75%. After the pause in June, we expect rate cuts to resume in the second half of the year, driving down the policy rate to 5,00% by the end of 2024. Both the still incipient recovery of economic activity and the tight monetary stance suggest it. Next year it would reach our estimated neutral level (4,50%).

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