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1.Summary

By , , , , ,

We project low growth this year with a rebound in 2018, driven by reconstruction and infrastructure spending.

Units:
Geographies:Peru Latin America


2.Global environment: global growth is consolidating but risks remain

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The global economy has accelerated in recent quarters. Global confidence data are clearly positive and global trade has recovered rapidly. All this has led to a recovery of industrial activity and investment globally.

Units:
Geographies:Peru Latin America


3.We expect slow growth this year and a rebound in 2018

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The Peruvian economy will grow by 2.2% this year and will rebound to 3.9% in 2018. This will depend on the spending to rehabilitate and rebuild the affected areas of the country by the floods and also in the further progress in infrastructure construction.

Units:
Geographies:Peru Latin America


4.Fiscal policy: reconstruction increases likelihood fiscal stimulus will take place in 2018

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Institutional framework for the recently created reconstruction authority raises the likelihood that the fiscal stimulus will materialize in 2018. Our evaluation of the mechanism through which this expenditure will be planned and carried out is positive.

Units:
Geographies:Peru Latin America


5.External sector: the current account deficit will remain low and stable

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For this year, we project a notable improvement in the trade balance due, mainly, to the good performance of the exports. As a result, the current account deficit will be equivalent to 2% of GDP. Going forward, this deficit will remain at similar levels, which will limit the country’s external financing needs.

Units:
Geographies:Peru Latin America


6.Financial markets remain positive, but correction expected

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So far this year, local financial markets have continued to perform well, despite political noise and some fiscal strength erosion. The local currency, in particular, has appreciated about 4%. Our forecast, however, is that in the future it will tend to depreciate, but in a limited way.

Units:
Geographies:Latin America Peru


7.Inflation will continue to fall over the coming months

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In recent months, inflation has returned to the target range as a result of the normalization of food prices after El Niño Costero. In the absence of significant food shocks, inflation is expected to end the year close to the center of the Central Bank target range, even with a tendency to continue to decline in early 2018.

Units:
Geographies:Latin America Peru


8.Monetary policy: a suitable scenario for the Central Bank to embark upon more aggressive

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Taking into account the current outlook for (weak) activity, the downward trend we anticipate for inflation, and the fact that the bulk of the expenditure for the reconstruction of the coast northern will have an impact on activity only entering next year, the countercyclical effort is now on monetary policy.

Units:
Geographies:Latin America Peru


9.Risks to our growth forecasts for 2017 and 2018

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Our forecasts are liable to certain risks. On the external side, the financial vulnerabilities presented by China and the pace at which the FED will adjust its monetary position. Locally, the probability that there will be additional delays in infrastructure construction, that public spending on reconstruction will face frictions, and that confidence may deteriorate.

Units:
Geographies:Latin America Peru



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