Peru Economic Outlook. Fourth quarter 2021

Summary

The Peruvian economy will grow 12,2% in 2021. Activity has been showing relatively favorable performance, a positive surprise. However, the deterioration of confidence will weaken this impulse looking forward and, together with lesser external tailwinds, will result in a 2,3% growth of economic activity in 2022.

Key points

• Key points:
• Global recovery will continue in the following quarters but with lower impetus due to negative supply shocks. Due to upward inflation pressures, central banks will reduce monetary stimuli. In this context, metal prices will moderate, but remain at attractive levels.
• Locally, in a context of relative containment of the pandemic and high availability of liquidity for households, economic activity surprised to the upside during the third quarter. However, confidence has deteriorated, suggesting some slow down moving forward.
• Our baseline scenario considers, on the sanitary front, a third wave of contagions possibly before the year ends, although with limited impact on activity, and then a tendency for capacity restrictions to normalize as the vaccination process moves forward. On the political front, high and sustained uncertainty, coupled with low expectations from the private sector regarding the policies that will be implemented by the government.
• On the fiscal side, we forecast the deficit will fall from 8,9% of GDP in 2020 to 3,8% in 2021 and 2022, and only decrease some more in the following years. As a result, gross public debt will continue to increase, reaching over 40% of GDP in the medium term.
• The exchange rate will close the year between 4,00 and 4,10 PEN per USD and between 4,15 and 4,25 in 2022. Due to a lower rate of depreciation and the anticipated drop in the prices of raw materials in the following quarters, inflation, currently at 5,2%, will yield in the second half of 2022 and end that year at 2,6%. Before this happens, it will remain above the target range for several months and this will prompt the Central Bank to continue hiking its policy rate (from 1,5% to 2,0% in 2021 and then to 3,0% in 2022).

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