GDP | IPE expects Peruvian economy to grow less than 2% in 2024 Why? | Economy | Management | economy

The result obtained in the third quarter of 2023, along with leading indicators of the economy for the fourth quarter, predicts a weaker-than-expected performance in GDP (PPI) Peru this year. It is estimated by the Peruvian Institute of Economics (IPE), they also lowered their economic growth forecasts for 2024.

This year, IPE now expects the Peruvian economy to contract by 0.6%, revised downward from -0.3%. “Disregarding the pandemic, private consumption fell in the third quarter for the first time since 2001. This, combined with the underperformance of public investment and the effects of agriculture on exports, leads to lower forecasts for 2023 and 2024.He pointed out Teodoro Chrysolucian, Senior Economist at IPEIn the presentation “Peruvian Economy: Projections and Adjustment of Risks to 2024″.

He also highlighted the summary in employment Nationally, it registers a fall of 0.7% It masks strong regional differences. For example, between January and September, jobs fell by 11.2% in Puno and -6.8% in Chiclayo. Other regions also had much larger falls than the national average, such as Cusco (-5%), Arequipa (-5%) and Loreto (-4.6%).

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It is unlikely that the economy will reverse the decline recorded in the previous three quarters in the fourth quarter of 2023. “Business and consumer confidence indicators declined in October and November. Both indicators are located in levels They expect continued weakness in private spending in 2023 and 2024“Chrysologus explained.

Also, in October, mining’s share of GDP growth halved from the previous month.

read more: The Peruvian economy will grow in 2024 due to the “rebound effect”, but these are risks.

The forecast of the expected “recovery” of the Peruvian economy in 2024 is very conservative: Adjusted from 2.1% to 1.9%.

“The revision is due to lower entry velocity starting in the first quarter (next year).. We expect a lower efficiency of private spending. If we disaggregate demand, the main source of restructuring comes from private spending. Much of what we expect for recovery in 2024 is due to macroeconomic dynamics on the monetary side. Central Reserve Bank of Peru (BCRP) can make its monetary policy stance more flexible in line with lower inflation rates.Chrysologus explained.

IPE’s expectation is that inflation will end at 3.1% year-on-year in 2023 and enter the target range (between 1% and 3%) throughout 2024, when that year will be 2.5%. This would allow for future cuts in the BCRP reference interest rate, which would make the credit conditions of economic agents more flexible.

Risks to Development

Beyond the adverse weather associated with the event boyGrowth may be compromised in 2024 as business expectations take time to recover.

“In a scenario that takes even longer, that could translate into less activity than expected. “This will limit the ability of private consumption to recover.”Chrysologus points out.

In addition, he highlighted the growing weakness in financial accounts, with a strong increase in budget items in the past two years that reduce flexibility in managing costs, such as wages, aimed at closing social gaps. Reactivation. All this is happening against the backdrop of a slowdown in tax collection, which affects the state’s revenue and increases the risk of non-compliance with fiscal rules.

The economist was the same way Liliana Rojas-Suárez, director of the Latin American Initiative at the Center for Global Development.

“Peru has a financial solution. This is no doubt, but since it has very limited growth engines, it will worsen the financial results. The question is, if it continues to deteriorate, it may affect the risk and risk assessment of the country. Peru is on the verge of losing its investment grade status, and cannot afford to lose it because it allows limited external financing.”, He explained.

He added that the country could go further into debt, but given all the other weaknesses, institutional and productivity, it did not. “This is the great irony of Peru, with all the problems it has, because both monetary and fiscal policy are conservative, it maintains a low spread”Rojas-Suarez added.

read more: Household spending remained “in the red” last quarter, but declined modestly.

2025

By 2025, in the absence of the shocks that have affected economic activity in recent years, GDP growth should return to the potential rate, which the IPE estimates at 2.8%. “This growth will be mainly explained by improving the efficiency of private spending. “There will be more flexible interest rates or less restrictive conditions on consumption.”The crystalologist pointed out.

However, if the Peruvian economy emerges from the recession at a slower-than-expected pace, the pace of growth will moderate. Also, a rate below 3% is not enough to recoup the lost gains of recent years.

“Potential growth is worrisome. The gap between Peru’s per capita income and that of developed countries was closing, but the gap has continued to widen since 2013. If Peru grows by 3%, it will never close the gap. Peru needs to grow more or less 5% to 6% to close the gap in about thirty years. “They are the stages necessary to start moving up the growth ladder, and if you grow less you will continue to stagnate.”Rojas-Suarez said

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