Published on Thursday, July 16, 2020 | Updated on Thursday, July 23, 2020

Peru Economic Outlook. Third Quarter 2020

Isolation measures imposed in order to contain the propagation of the coronavirus are having a strong impact on GDP. In this context, we expect it to contract this year between -18% and -12%, with a rebound between 6,5% and 10,5% in 2021 that will, however, be insufficient to reach the level of activity observed in 2019.

Key points

  • Key points:
  • The focus of the pandemic has passed from Asia to the American continent, but countries in general have started to resume economic activity in spite of them going through disparate phases. All in all, we expect global output to shrink this year slightly more than 3% and to rebound in 2021.
  • Domestically, economic activity has been strongly hit by the measures implemented to contain the propagation of the new coronavirus. However, the worst seems behind us and normalisation has begun. We expect it to continue going forward provided there are no important virus’ outbreaks that result in new harsh, widespread, and lengthy isolation measures.
  • With the resumption of productive activities, GDP performance will depend mostly on the behavior of aggregate demand. The latter will normalise slowly in the coming quarters given the after-effects of the negative shock, caution to spend, and uncertainty. In this context, we expect output to contract between -18% and -12% this year and rebound between 6,5% and 10,5% in 2021.
  • On the fiscal side, support programmes for households and firms, coupled with the decline of economic activity, will lead the fiscal deficit to surpass the equivalent of 9% of GDP in 2020. It will moderate afterwards given the transitory nature of the support measures and the gradual recovery of output. Thus, gross public debt will escalate, reaching 34% of GDP in 2020 and approaching 40% in the medium run.
  • On the monetary side, we expect the policy rate to remain at 0,25% (historical minimum) at least until the end of 2021. This considers that inflationary pressures will remain contained and that stimulus will be required to support economic activity and correct the current economic slacks.

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