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Peru Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

The Peruvian economy will recover in the coming years, driven byrobust private consumption growth and a pickup in infrastructureinvestment.After the budget balance flipped from a surplus to a deficit for thefirst time since 2009 in 2014, we expect persistent shortfalls in thecoming years due to lower government revenue growth.Weakening trade dynamics will drive depreciation in the Peruviansol through 2016, with a modest appreciatory trend set to begin in2017.Major Forecast ChangesSigns of further softening of Chinese metals demand saw us alterour exchange rate outlook for 2016, and we now anticipate a furtherweakening of the sol next year. We forecast the unit to averagePEN3.210/USD in 2015 and PEN3.540/USD in 2016.

Table Of Contents

Peru Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
FP Victory Will Not Improve Security Environment8
Rising popular concern s over crime in Peru will offer inc reased tailwinds to opposition p residential candidate Keiko Fujimori ahead of
the April 2016 election
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook 10
Mining Disputes Main Threat To Stability10
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 Growth Outlook 14
Growth Rebound Will Gain Steam In 201614
Economic growth in Peru will accelerate in 2016 as the continuation of government stimulus measures bolsters consumption and
investment
GDP By Expenditure Outlook 15
TABLE: GDP GROWTH FORECASTS15
TABLE: PRIVATE CONSUMPTION FORECASTS15
TABLE: GOVERNMENT CONSUMPTION FORECASTS16
TABLE: FIXED INVESTMENT FORECASTS16
TABLE: NET EXPORTS FORECASTS16
Monetary Policy 17
September Hike Signals Start Of Tightening Cycle17
After a 25 basis point (bps) rate hike in September, the Banco Central de Reserva del Perú will continue monetary tightening in the
months ahead on the back of above-target inflation and accelerating economic growth
Fiscal Policy And Public Debt Outlook 18
Stimulus Measures Will Lead To Modest Fiscal Deficits18
Peru's fiscal deficit will widen in 2016 as the government continues stimulus measures in light of sluggish headline growth The
government will close its deficit gradually, while its strong reserve position and credible policy environment supports its sovereign
credentials
Structural Fiscal Position 19
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES19
External Trade And Investment Outlook 20
Modest Export Growth Will Narrow Current Account Shortfall20
Peru's current account deficit will narrow over the coming years, although low commodities prices will weigh on export growth and keep
the country a net goods importer
Outlook On External Position 21
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE21
TABLE: TOP 5 GOODS IMPORTS 22
TABLE: TOP 5 GOODS EXPORTS IN 22
Currency Forecast 23
PEN: 20-Year Lows Will Be Tested In 201623
The Peruvian sol will continue to depreciate in 2016, as weakness in global copper markets undermines Peru's trade dynamics The
BCRP will also gradually taper off its support for the currency, which will lead the unit to test its 20-year lows by end-2016
TABLE: BMI CURRENCY FORECAST23
TABLE: EXCHANGE RATE24
Chapter 3: 10-Year Forecast 27
The Peruvian Economy To 2024 27
Slower Growth Ahead27
Economic growth in Peru will cool over the coming years, as a slowdown in Chinese economic growth d ampens metals demand and
prices That said, solid macroeconomic policies, substantial commodity wealth and a growing consumer base will continue to drive
investor interest in Peru over our 10-year forecast period
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Education 31
TABLE: LATIN AMERICA - EDUCATION RISK32
TABLE: TOTAL GRADUATES OF TERTIARY EDUCATION ('000)33
Government Intervention 35
TABLE: LATIN AMERICA - GOVERNMENT INTERVENTION RISK36
TABLE: PERSONAL INCOME TAX BRACKETS IN ATU (ANNUAL TAX UNITS) 37
Chapter 5: BMI Global Macro Outlook 41
Global Outlook 41
Emerging Markets Bending, Not Breaking41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43

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