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Peru Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views The Peruvian economy will strengthen in the coming years, driven by production growth in the extractive sector, robust private consumption and infrastructure investment. The central government will post persistent, though narrowing, fiscal shortfalls due to lower government revenue growth. Weakening trade dynamics will drive depreciation in the Peruvian sol in 2016, with a modest appreciatory trend set to begin in 2017. Major Forecast Changes In response to a further weakening of Chinese metals demand, we reversed our forecast for export growth in 2016 and now expect a fourth consecutive year of export contraction, although at a much more modest scale.

Table Of Contents

Peru Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Mining Sector Will Power Robust Growth8
Real GDP growth in Peru will accelerate in 2016, driven by strong production growth in the country's extractive sector Rising capital
expenditures and regulatory improvements will drive investment into key infrastructure projects
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 10
Modest Deficits Will Persist In Response To Slower Growth10
Peru's fiscal deficit will widen in 2016 as the country's ongoing economic rebound weighs on revenue growth and encourages
expenditure expansion However, prudent fiscal policy will ensure the deficit begins to narrow in 2017, supporting the government's
sovereign credentials
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Weakness Abroad Will Mask Underlying Strength13
Peru's current account deficit will narrow modestly in 2016 as import declines outpace continued export weakness The country's strong
investor appeal will support capital inflows that will fund the deficit and underpin its stable external position
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE15
TABLE: TOP 5 GOODS IMPORTS IN 201415
TABLE: TOP 5 GOODS EXPORTS IN 201415
Monetary Policy 17
Persistent Inflation Will Drive Additional Rate Hikes17
The Banco Central de Reserva del Perú will continue its rate hiking cycle in 2016 in an attempt to rein in inflation Inflation is set to
remain above-target through 2017, as a result of the sol's depreciation, accelerating growth and rebounding energy prices
Monetary Policy Framework 18
Currency Forecast 19
PEN: Bottom In H116, Modest Rebound Thereafter19
The Peruvian sol will base in H116 near its 20-year lows as the Banco Central de Reserva del Perú reduces its support for the unit
TABLE: BMI CURRENCY FORECAST19
Chapter 2: 10-Year Forecast 21
The Peruvian Economy To 2025 21
Robust Growth Ahead As Economy Diversifies21
Peru will see robust economic growth in the coming years, as its mining-driven economy gradually diversifies Private consumption will
increasingly drive growth, while fixed investment flows will lead to improving infrastructure
TABLE: LONG-TERM MACROECONOMIC FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Fujimori Presidency Highly Likely24
Centre-right candidate Keiko Fujimori will likely win Peru's presidency in a run-off election in June, bolstered by voters' desire for
a leadership change in response to slowing growth and rising security concerns Fujimori's Fuerza Popular party will pursue an
investment-friendly reform agenda, brightening the country's growth outlook
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Mining Disputes Main Threat To Stability26
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 Concerted efforts will be needed to address this issue, along with the ongoing problems of
corruption and coca cultivation, if the country is not to be under increasing threat from populism Nevertheless, our core scenario is for
the country's ongoing export-led growth to raise living standards, creating a core of middle-class stability that will act as a buffer against
other risks
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Trade Procedures And Governance Analysis 31
TABLE: DOCUMENTS REQUIRED TO EXPORT AND IMPORT31
TABLE: PROCEDURES, DURATION AND COSTS (USD) 31
TABLE: LATIN AMERICA - TRADE PROCEDURES AND GOVERNANCE RISKS 32
Vulnerability To Crime Analysis 33
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Tail Risks Mounting Amid Sub-Par Growth37
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %39
TABLE: MACROECONOMIC DATA and FORECASTS41

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