Peru Economic Outlook. Second quarter 2021

We expect the Peruvian economy to grow 10% in 2021 and 4,8% next year, supported by a favourable external context. These forecasts are strongly conditioned to the maintenance of macroeconomic stability by the new government administration and largely reflect a rebound after the sharp output contraction in 2020.

Key points

• Key points:
• The global economy continues to recover in spite of the still complex epidemiological context. In the US, new fiscal stimuli reinforce the commitment of economic policies to the recovery of activity. Globally, industrial metal prices find support in expected investments in “green infrastructure”. As a result, the external environment looks favorable for the Peruvian economy.
• Our forecasts for GDP growth and fiscal and financial variables assume that, in general, the next government will maintain an environment of macroeconomic stability that fosters the development of private sector initiatives. On the health front, we assume that mobility restrictions similar to those currently in place will continue and that the most vulnerable population will be completely vaccinated in 4Q21.
• Given the initial conditions and assumptions considered, we estimate the Peruvian economy will grow 10% this year, largely as a result of a significant “rebound effect” of nine percentage points. We expect output to grow 4,8% in 2022 as the vaccination process rollout keeps moving forward, thus allowing isolation measures to flexibilise. Coupled with the recovery of confidence, these elements will favour private sector spending.
• On the fiscal side, we expect a gradual moderation of public spending and the adoption of fiscal measures in order to ensure a structural increase in fiscal revenues. Hence, we forecast that gross public debt will stabilise around 40% of GDP in the coming years.
• Finally, in a context without significant demand pressures on prices (we estimate inflation will remain around 2,0% in the coming quarters), the Central Bank will maintain its strong expansive monetary policy stance with the policy rate remaining at its current level of 0,25% until mid-2022.

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