Peru Economic Outlook. Second quarter 2020

Summary

Our forecasts have been revised to incorporate the macroeconomic impact on the Peruvian economy of the measures to contain the COVID-19 outbreak. As a result, we estimate that GDP will contract between 5% and 8% in 2020, with a downward bias. A significant rebound will take place next year.

Key points

• Key points:
• The outbreak and global expansion of COVID-19, coupled with the measures being implemented to contain it, are having a significant economic impact in the world and have prompted major changes in our macroeconomic forecasts.
• Domestically, with the beginning of mandatory social isolation on the second half of March, the impact on economic activity has been significant according to several indicators.
• In this context, characterised by high uncertainty that reduces forward visibility, we forecast that output will contract this year (between -8% and -5%, with a downward bias), something that has not occurred since 1998. The recovery will be gradual but, despite the important rebound we expect in 2021, it will be insufficient for GDP to resume the growth path we anticipated at the beginning of this year.
• On the fiscal side, the stimulus package will result in the 2020 fiscal deficit becoming the highest of the century so far. In the following years it will tend to decrease because the support measures are mainly transitory in nature. However, we estimate that gross public debt will stabilise above the limit established by the Fiscal Responsibility and Transparency Law (30% of GDP).
• Bearing in mind our GDP and domestic demand forecasts, coupled with the absence of significant pressures on prices, we anticipate that the monetary policy rate will remain at its current level (0,25%, historical minimum) at least until the end of 2021.

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