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Peru Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 52 pages

Core Views

The Peruvian economy will expand at lower average rates in the coming years as a decline in metals prices weighs on private investment into mining and results in slower export growth. However, private consumption and public investment will remain relatively resilient in the coming years due to a rising middle class and an extensive infrastructure project pipeline.

Major Forecast Changes

Real GDP growth fell below our expectations in the first three quarters of 2014, driven by weak exports and investment, prompting us to downgrade our growth forecast. We now project real GDP growth of 3.0% in 2014 and 3.7% in 2015, compared with our previous projections of 3.8% and 4.0% for 2014 and 2015 respectively.

Table Of Contents

Peru Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
PNP Increasingly Vulnerable To 2016 Defeat 8
Slowing economic growth will continue to weigh on the popularity of Peruvian President Ollanta Humala in the coming months, leaving
his centre-left Partido Nacionalista Peruano vulnerable to defeat in the 2016 presidential elections.
TABLE: Political Overview 8
Long-Term Political Outlook 9
Mining Disputes Main Threat To Stability 9
Peru's long-term political stability is undermined by key structural risks, most prominently associated with mining and hydrocarbons
exploration in the country's Amazon region.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Economic Growth To Remain Subdued In 2015 14
Weak metals prices will weigh on investment in Peru in 2015. While loose monetary policy and expansionary fiscal policies will buoy
private consumption, it will not be enough to see headline growth return to the robust 5.0%-plus rates seen between 2010 and 2013.
TABLE: GDP By Expenditure 14
Monetary Policy 15
BCRP To Maintain Loose Monetary Policy In 2015 15
The Banco Central de Reserva del Perú (BCRP) will keep its reference rate unchanged at 3.50% through 2015. The BCRP's main tool
to stimulate lower trending economic growth will continue to be a lowering of the reserves requirement ratio for commercial banks in the
coming months.
TABLE: Monetary Policy 16
Fiscal Policy 17
Budget Surplus To Narrow Further On High Spending 17
The Peruvian government's nominal budget surplus will narrow further in 2015, driven primarily by an uptick in public spending. Indeed,
slowing economic growth and the declining approval rating of President Ollanta Humala will encourage the government to increase both
current and capital spending.
TABLE: Fiscal Policy 17
Balance Of Payments 18
Weak Trade Dynamics To Keep Current Account Deficit Wide 18
Unfavourable trade dynamics will keep Peru's current account deficit near its largest levels over the past decade in 2015. An ongoing
contraction in mining exports, amid falling industrial metals prices and slowing Chinese demand will be the main driver of another large
trade shortfall in 2015. However, a strong reserves position will ensure relative balance of payment stability.
TABLE: Current Account 19
Currency Forecast 20
PEN: Record Trade Deficit To Drive Depreciation 20
The Peruvian sol will continue its depreciatory trajectory in the coming quarters, driven by weakening trade dynamics and a
strengthening US dollar. Intervention by the Banco Central de Reserva del Perú will curb the magnitude of currency weakness, but the
depreciatory direction of the unit will remain in place.
Business Monitor International Ltd www.businessmonitor.com 3
Regional Private Consumption Outlook 22
No Major Upside In 2015 22
Real private consumption growth in most of Latin America will trend lower in the next few years, driven by currency weakness and
unfavourable labour market dynamics. Mexico and Colombia are the only two major economies in which we expect faster average real
private consumption growth over the next three years.
TABLE: Brazil - Private Consumption Indicators 22
TABLE: Mexico - Private Consumption Indicators 22
TABLE: Andean - Private Consumption Indicators 23
TABLE: Southern Cone - Pri vate Consumption Indicators 23
TABLE: Central America - Private Consumption Indicators 24
Chapter 3: 10-Year Forecast 27
The Peruvian Economy To 2023 27
Cooling Growth Ahead 27
Economic growth in Peru will cool to an average growth rate of 4.6% between 2015 and 2024, as a slowdown in Chinese economic
growth dampens metals demand and prices in the short term, while fixed investment and private consumption growth moderate from
their recent highs.
TABLE: Long-Term Macroeconomic Forecasts 27
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: Operational Risk 30
Transport Network 31
TABLE: Latin America - Transport Network Risks 31
Economic Openness 34
TABLE: Latin America - Economic Openness Risk 34
TABLE: Imports By Product, 2007-2012 35
Chapter 5: Key Sectors 39
Oil and Gas 39
TABLE: Oil Production 40
TABLE: Oil Production 40
TABLE: Gas Production 41
TABLE: Gas Production 41
Water 42
TABLE: Water Extraction, 2012-2018 44
TABLE: Water Consumption, 2012-2018 44
Other Key Sectors 47
TABLE: Pharma Sector Key Indicators 47
Table: Telecoms Sector Key Indicators 47
Table: Infrastructure Sector Key Indicators 47
TABLE: Food and Drink Sector Key Indicators 48
TABLE: Autos Sector Key Indicators 48
TABLE: Freight Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Warning Signs Growing 49
Table: Global Assumptions 49
TABLE: Developed States , Real GDP Growt H, % 50
TABLE: Emerging Markets , Real GDP Growth , % 51

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