Peru Economic Outlook. October 2022

After growing 3.5% YoY in the first half of the year, activity will slow down in the second half, resulting in GDP growth of 2.3% in 2022. For 2023, we expect a 2.5% expansion, driven by the recovery of mining and tourism that will compensate for a weak external environment and the downturn in public investment.

Key points

• Key points:
• The external environment shows increasing signs of deterioration. Inflation remains high and persistent, prompting central banks to increase their interest rates more aggressively, increasing fears of recession. We forecast global GDP growth of 3.2% in 2022 and 2.4% in 2023.
• On the fiscal side, we forecast a deficit around 2% of GDP for 2022 and 2023, consistent with gross public debt remaining in those two years between 35% and 36% of GDP, but with a slight upward trend later on.
• The PEN will weaken in the coming months due to a decrease in the interest rate differential between soles and dollars, greater risk perception, some deterioration of the balance of payments’ current account (up to 4.0% of GDP in 2022), and a more challenging environment to finance the deficit. Thus, we forecast that the exchange rate will end 2022 between 3.90 and 4.00 soles per USD, while in 2023 it will be between 4.00 and 4.10.
• We forecast that inflation will end this year around 7.5% and the next around 3.5% in a scenario with a high year-on-year comparison base, falling international prices for food inputs and oil and weak local economic activity, but also featuring a stubborn headline inflation in the short term.
• Given inflation still at high levels and unanchored expectations, we do not rule out that the Central Bank will raise its policy rate somewhat more before the end of the year, despite the slowdown in economic activity. In mid-2023, when inflation registers a steep decline and the Fed has paused, the Central Bank will find room to start normalizing the monetary policy stance.

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