IPE | What measures are necessary to reverse the recession and restore business confidence and private investment in Lima and other affected areas? | Recession in Agriculture and Fisheries | economy

fall The Peruvian Economy At the beginning of 2023 (-0.4%) hides important differences within the country: 17 regions showed negative growth, which is comparable to the results caused by the pandemic in 2020. Worse still, seven regions—including Lima—entered a technological recession. After accumulating two quarters of consecutive declines.

Regression and stagnation

Aburimac, Pasco and Puno were hit hardest by roadblocks in early 2023 due to low mining production and the halting of investment projects. However, there are seven regions that entered the technological recession: Amazonas, Ayacucho, Huancavelica, Junin, Lima, Madre de Dios and Tagna, which account for close to 50% of the national GDP. The hardest hit is Dagna, which has been in the red for six consecutive quarters, followed by Ayacucho and Huancavelica, with three-quarter contractions.

Successive declines in Tacna and Ayacucho are mainly due Low mining extraction As the concentration of metal in the mined area is low and production is stopped due to resistances in the active areas, respectively. For its part, the collapse of Huancavelica is in response to lower electricity production due to a 42% annual drop in the level of Lake Junin between the end of 2022 and the beginning of 2023, which feeds the Montero hydroelectric plant.

Unlike other regions, Moquegua has seen economic growth of more than 40% for two consecutive quarters, driven by the start of operations at the Quellaveco mine. If this progress is sustained, Mokugua’s annual GDP per capita will increase from S/52 thousand to S/73 thousand, which is 4.3 times the national average (S/17 thousand).

Less investment, less employment

An important factor in the widespread regional recession is a significant drop in investment in new construction projects. Of the 17 regions that recorded a decline in GDP in the first quarter of the year, the construction sector piled up the negative impact. Additionally, in areas where there have been more blockades and protests, such as Madre de Dios, Apurimac and Puno, Construction recorded an average fall of more than 40%.

Low investment, which curtailed the growth of the construction sector, led to a loss of dynamism in creating formal jobs, and consequently, consumption-related sectors suffered against a backdrop of high inflation. For example, in Puno and Lambake, GDP in the construction sector fell by an average of 36% and formal private employment fell by 2.5%.

Weak reactivation

Significant declines in agriculture and fisheries and continued weakness in consumption and investment-related activities have worsened the prospects for recovery of regional economies in the second quarter of 2023.

Lower harvests of crops intended for the domestic market, such as potatoes and corn, are weighing heavily on the economy, with agricultural GDP expected to fall back into double digits in the second quarter in regions such as Aburimac, Puno, Cuzco and Cajamarca. After accumulating an average reduction of 22% in the first quarter. For its part, the anchovy fishing ban in the North-Central region and lower squid quotas in the second quarter will reverse the strong growth (179%) of fishing in areas such as Lima, Piura, La Libertad, Ancash and Aiga. First quarter of 2023.

According to IPE calculations, mining GDP increased by almost 33% in April 2023, mainly in the south of the country, where a solid improvement in mining offsets lower activity in agriculture and fishing. This result anticipates a recovery of activity in the southern regions at the beginning of the second quarter given the expansion of copper production (52%). The latter is favored by the consolidation of Quellaveco (Moquegua) and the resumption of operations in deposits such as Las Bambas (Apurímac) affected by social conflicts.

Lima Lake

Areas that rely heavily on private sector consumption and investment spending, such as Lima, also face a tougher outlook. IPE’s Composite Indicator of Economic Activity (ICAE), which assesses the monthly evolution of regional economies, indicates that growth in capital GDP continued in negative territory (-0.3%) in April. such as construction, trade and services.

The fourth recession in the past 25 years in Lima and other affected areas is only possible if measures are implemented to restore business confidence and private investment. In this way, a moderate level of inflation will pick up in the second half of the year, as this will help restore the purchasing power of consumers.