Economy | Animal Spirits, Alfredo Thorne | Investment | Peru | Comment

Economy |  Animal Spirits, Alfredo Thorne |  Investment |  Peru |  Comment

The economy has become a major concern. The latest INEI report on national output shows that after eight quarters of expansion since the recession in 2020, GDP has contracted again (0.4% annual rate in the first quarter and 3.3% if we use an annualized quarterly rate like OECD countries). Evidence provided Central Reserve Bank of Peru (BCR)), in his inflation report, showed that much of it was due to protests in the South; and INEI’s report, Effect of rain.

The question many of us are asking ourselves is how long it will take to recover and grow again at rates above 4% like a few years ago. He PCR, in its inflation report, provides seasonally adjusted quarterly estimates suggesting a rebound is imminent, with GDP in the current quarter at 2% over 4Q22 and 4% in 4Q23. Although they have revised their GDP estimate to 2.6% for this year, they maintain their estimate of 3% for 2024. We are less optimistic and see a recovery starting in the second semester. economy It will remain weak throughout the year, growing only 1.5% in 2023 and 2.8% in 2024.

Recently we’ve had positive news from abroad, which has given us a leg up, and re-implementation of new mining projects, such as La Granja in Cajamarca. The international price of copper, though falling, remains at US$3.7 per tonne; Demand for our products has been buoyed by the resurgence of China, our major trading partner. economy After the epidemic. We estimate that our trading partners will grow by 3%. Despite many expecting a global recession, we will have good news this year Economies Emerging markets offset severe recessions Economies Created, it will, on average, grow by 1.3% this year and the following.

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But the economy External demand alone cannot recover it and we think internal slowdown will offset good external news. This can be seen in the overall seasonally adjusted electricity demand economy As of May 7, a good early indicator of our national output; The monthly calculation shows a rebound in March and falls in April and early May. Private spending will be the biggest challenge. According to our estimates, private consumption will grow by only 1.8% in 2023 Private investment It will decrease by 1.8%. On the one hand, there will be no support for private consumption this year as it was last year. But the destruction of value caused by protests in the south and rains in the north is more relevant. Not only did many workers and businesses experience a reduction in their income, but the destruction of their homes and infrastructure forced them to save even more to finance reconstruction.

Abbreviation of Private investment It is measured due to uncertainty PCR In his calculations Business expectations. Although they recovered in April, only the three-month sub-index did not recover Investment. To understand the contribution of the private sector, it is convenient to review savings and estimates Investment Personal. According to data from PCR, the private savings rate declined from 18.7% of GDP in 2017 when the political crisis began to 13.5% of GDP in 2022; At the time Private investment It was 16.9%. As a result, essentially, companies see higher risks to their investments. If the rate Investment If the political crisis continues it becomes a potential saving, which will deduct several percentage points from our growth. economy.

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There is more than one way to compensate for the slowdown in private spending Investment Government: Use Investment Government as a stimulus – a shock expectations– to impress Private investment and, thus, offsets the destructive effect of private consumption expenditures. He Ministry of Economy and Finance It seems poised to see that effect and estimates it will grow 6% this year, up from 1%. PCR Or our fall rating. Also, only S/4,000 million has been set aside to cover the estimated cost of the rains, between S/14.2 and S/21.7 billion. The difference should be considered personal. It’s not about spending for the sake of spending, aid should focus on compensating the private sector or stimulating more projects. Private investmentAnd it’s not done.

But whether this is enough to change that remains questionable expectations. John Maynard Keynes called them “animal spirits”; That means in results Investment There is an element of irrationality that the government must attack. And nothing has been done to address the real causes of political uncertainty. Investors are looking to the next electoral process for reassurance that Peru has not changed course in its economic management and will keep us growing slowly until then.

*El Comercio opens its pages to the exchange of ideas and reflections. In this pluralistic structure, the newspaper does not agree with the opinions of the signing writers, although it always respects them.


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