Peru Economic Outlook. Third quarter 2022

Considering the more favorable trend of private spending and households’ early access to private pension funds, output growth forecast for 2022 has been raised to 2,3%, while that for 2023 remains at 2,8% given that the deterioration of the external environment is expected to be offset by the recovery of mining production.

Key points

• Key points:
• The external environment has deteriorated, even more than expected. Inflation remains at unusually high levels and central banks have accelerated their interest rate hikes. In that context, markets are now considering an eventual recession in the U.S. We expect global GDP to grow by 3,4% in 2022 and 2,5% in 2023 (-0,6pp and -1,1pp in each case compared to our previous forecasts).
• On the fiscal side, we forecast a deficit close to 2% of GDP for 2022 and 2023, consistent with gross public debt (as a % of GDP) remaining in those years between 35% and 36%, but trending somewhat upwards later on.
• We believe the foreign exchange will face upward pressures in the coming months due to a widening external deficit (up to 5,0% of GDP in 2022), increased risk perception, and a reduction of the interest rates differential between soles and dollars. As a result, we expect it to end 2022 between 3,90 and 4,00 soles per USD and 2023 between 3,95 and 4,05 soles per USD.
• Turning to prices, inflation has reached a 25-year high, but it will probably start to drop since 3Q22. This decline could be relatively slow, however, given inflation expectations de-anchoring and the impact of domestic fertilizers scarcity. Thus, we expect inflation to return to the target range only in 2024 (ending 2022 at 6,8% and 2023 at 3,3%).
• Increased inflationary pressures will lead the Central Bank to keep raising its policy rate until it reaches a somewhat restrictive level in the fourth quarter of the year. In nominal terms, the reference rate could end the year around 7,25%, but this will depend on how inflation expectations behave. Later on, when the downward inflationary trend is clear and as the Fed ends its hiking cycle, the BCRP will begin to cut the policy rate.

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