Peru Economic Outlook. Second quarter 2022

Summary

Taking into account a less favorable external scenario, we have revised downwards the growth forecasts for 2022 and 2023, from 2.3% to 2.0% in the first case and from 3.0% to 2.8% in the second.

Key points

• Key points:
• Our international context is less favorable than it was three months ago, mainly due to the conflict between Russia and Ukraine. In this context, global inflation increases and economic activity will slow down more than expected: after expanding 6.1% in 2021, global GDP is expected to grow 4.0% this year and 3.6% in 2023 (-0.4pp and -0.2pp in each case compared to our previous forecasts). Domestically, this will imply lower exports and a deterioration of households' purchasing power (due to higher inflation) that will have a negative impact on consumption.
• On the fiscal side, we assume a very gradual consolidation process, with a marginal reduction in the deficit in the coming years. Given the expected path for the fiscal deficit, gross public debt, as a percentage of GDP, will remain relatively unchanged this year (around a level equivalent to 36% of GDP), but going forward we expect it to continue increasing, approaching 39 % in 2027.
• Regarding the exchange rate, we estimate that the USDPEN will close 2022 (daily average for December) between 3.85 and 3.95 soles per USD, while in 2023 it will do so between 4.00 and 4.10 soles per USD.
• Turning to inflation, persistently higher international prices will put pressure on it, pushing inflationary expectations upward and generating a feedback on prices. In consequence, in the new baseline scenario we revise inflation upwards in 2022 (5.0%) and 2023 (2.6%).
• In this context of higher inflation, we anticipate that the Central Bank will continue to adjust the policy rate in the coming months, reaching a level of 5.50% in the third quarter of 2022. Later, when inflation is closer to the target range, we anticipate that the reference rate will begin to move towards a more neutral level (ending 2023 at 5.00%).

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