Peru Economic Outlook. Third quarter 2021

The Peruvian economy will grow 9.0% in 2021 and 4.3% in 2022, reflecting a strong "statistical rebound" and favorable external conditions. These forecasts are made in an environment of high uncertainty. The announcements made by the incoming administration will give greater visibility on the likely evolution of the economy.

Key points

• Key points:
• The global economic recovery is consolidating, underpinned by a greater control of the pandemic and significant economic stimuli. In this context, metal prices have maintained the accumulated gains, thus configuring a favourable environment for the Peruvian economy.
• On the local side, economic activity during the first half of the year has shown a better-than-expected performance. Health indicators have improved significantly and the vaccination process has accelerated; however, a third wave of contagions in the coming months cannot be ruled out. Our base scenario considers a political context of high and sustained uncertainty both in this and next year that will induce caution in private sector spending, particularly investment.
• On the fiscal side, a deficit of over 4,0% of GDP is expected for 2021, and going forward it will remain above 3,0%, despite the recovery of revenues (mainly from mining). In this context, gross public debt will continue on an upward trend (reaching a level above 40% of GDP in the medium term) and, therefore, the probability of a sovereign credit rating downgrade has increased.
• We expect the foreign exchange to close this and next year between 4,0 and 4,1 soles per USD. It is likely to remain above the upper limit of the target range in the coming months.This leads the Central Bank to face a dilemma: inflation above the target range, but economic activity still recovering and requiring a strong monetary stimulus. Taking into account the recent moderation of its dovish tone, we estimate that the policy rate will start to increase from the third quarter of 2021.

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