Commercial Empire.- The Peruvian economy continues to show no signs of recovery. Between January and September 2023, activity accumulated a 0.6% annual decline. Meanwhile, in October, the Peruvian Institute of Economics (IPE) It estimates that the economy would have registered a new contraction of more than 1.0% compared to the same month in 2022. With this, the country continues its longest recession since the late 1990s.
Faced with this new situation, the IPE again adjusted its forecasts on the economy and deepened the estimated drop in GDP for this year from -0.3% to -0.6%, thus recording the worst result since 1990 without taking into account the pandemic crisis. The outlook for 2024 has also worsened and a slight rebound is expected, from 2.1% to 1.9%.
The cut was mainly due to lower-than-expected private consumption and a slower-than-expected recovery in confidence. In fact, private consumption fell in the third quarter for the first time since 2001, regardless of the pandemic. Likewise, business and consumer confidence indices have deteriorated between October and November to levels that expect continued weakness in private spending for the remainder of 2023 and the first half of 2024.
Nevertheless, the economy is expected to start showing more activity in the second half of next year, given the favorable effects of lower inflationary pressures and interest rates on households’ purchasing power and firms’ investment capacity. IPE expects inflation to enter the target range between the first and second quarters of next year, ending at 2.5% in 2024. This would leave room for the Central Reserve Bank of Peru (BCRP) to cut its monetary policy reference rate by around 200 basis points over the next year. Barring further adverse shocks, the economy will return to its potential growth rate of 2.8% in 2025.
The outlook for 2024 still reveals risks of lower-than-expected energy. For example, an El Niño event (ENF) of moderate to strong intensity will delay the recovery of private spending, and sectors more exposed to climate shocks such as agriculture and fisheries. Likewise, if business and consumer confidence are at low levels, this could translate into weaker-than-expected consumption and private investment.
This adjustment was made during the webinar “EThe Peruvian Economy: Projections and Adjustment of Risks to 2024”, organized by IPE and featuring a presentation by IPE’s Senior Researcher Teodoro Crisolucion and special guest Liliana Rojas-Suárez, Director of the Global Development Center’s Latin American Initiative.
Rojas-Suárez highlighted in his analysis that Peru still shows a solid economic position to face the risks of an increasingly adverse and uncertain external environment. Along these lines, he pointed out, low levels of public debt and high international reserves put Peru at an advantage over other emerging economies. However, he warned that the country’s institutional weakness limits its ability to undertake structural reforms that boost economic growth in the medium term. According to their estimates, if growth rates of 2% to 3% are maintained, Peru will never reach the level of per capita income of developed countries.
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