Peru Economic Outlook. October 2024

Summary

GDP will grow 2.9% this year and 2.7% in 2025. Private spending will gain traction in the coming quarters, supported by more favourable financial conditions, the impact of private pension funds withdrawals, and the beginning of construction of some infrastructure projects, while public spending will moderate.

Key points

• Key points:
• Global economic growth will converge towards moderate levels and monetary conditions will gradually become less restrictive as inflation falls and labour markets normalise.
• The fiscal deficit is currently at 4,0% of GDP amid weak revenues. In the remainder of the year this deficit is expected to moderate due to a gradual improvement in tax collection (positive impact of stronger economic activity and high export prices). However, it will still end 2024 at around 3,4%, thus exceeding for the second year in a row the fiscal rule ceiling. Revenues improvement is expected to continue in 2025, driving the fiscal deficit down to 2,2% of GDP, in line with the target ceiling.
• Considering a PEN-USD interest rate spread around zero in the last quarter of 2024, we foresee that the foreign exchange will end the year between 3,70 and 3,80 soles per dollar. For 2025 we anticipate some strengthening of the PEN, to a range between 3,65 and 3,75 by year-end, amid the interest rate spread becoming favourable, a still high trade surplus, and despite uncertainty likely turning more visible due to the domestic electoral process of 2026, especially towards the end of that year.
• Anchored inflation expectations and the absence of demand pressures on prices suggest inflation will remain within the target range in the coming quarters, closing this year around 2,5% and next year at 2,3%.
• With inflation under control and the gradual reduction of slack in the economy, the central bank is expected to keep cutting its policy rate in the remainder of the year, reaching 4,50% at the end of 2024, a level that we consider as neutral and at which it will remain in 2025.

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