Peruvian economy continues to lose momentum and grows only 1.41% in July

Metallic mining production contracted 6.2% due to the low grade of processed minerals and due to social conflict.

The Peruvian economy continues to slow down and in July it registered its lowest growth rate in the year and since March 2021. Thus, analysts maintain that in the current scenario, the slowdown in the country’s productive activity is materializing.

According to him National Institute of Statistics and Informatics (INEI)the national production grew by only 1.41% in July, while in the accumulated period between January and July of this year it grew by 3.22%.

Given these results, BBVA Research explained that the slowdown in July is mainly due to the contraction of the primary GDP (-1.4%): metallic mining production contracted 6.2% (due to the low grade of processed minerals and due to social conflict) and hydrocarbons 3.4% (affected by weather factors that made transportation difficult).

A more pronounced moderation was also observed in the growth of non-primary GDP (2.1% vs. 3.8% in June). This trend is explained by the contraction of non-primary manufacturing (whose last negative record was in December 2020), linked to the lower manufacturing of consumer and capital goods, and the moderation of growth in the construction sector (2.1% vs. 6.0 % in June).

In addition, the expansion in the accommodation and restaurant and transportation sectors was also lower as the “rebound” effect dissipated after the sanitary isolation measures were relaxed.

“The growth of 1.4% inter-annual in July is consistent, according to the INEI, with a contraction of 0.79% inter-monthly (seasonally adjusted). If this level remains unchanged until the end of the year, the expansion of GDP in 2022 it would be 2.2%”, according to BBVA Research estimates.

For its part, Víctor Fuentes, head of the Peruvian Institute of Economy (IPE)pointed out that July recorded the lowest GDP data since March of last year, for which it “paints the field” more clearly on the materialization of an economic slowdown.

“Consumption is no longer going to last any longer, if we look at it by spending, private investment is declining more and more and the mining sector is in very bad shape, this is dragged down by the very strong drop in production in Apurímac and Moquegua,” commented the economist.

Likewise, Fuentes explained that there are negative expectations regarding mining investment, since the Newmont mining company announced that it will postpone the start of its Yanacocha Sulphides project until 2024. This forces us to review private investment projections for next year, which is worrying”, he emphasized.

According to the IPE, GDP growth would reach 2.1% in 2022 with a 3.1% drop in private investment.

Private consumption would show a marked deceleration in the third quarter of the year, which would imply a cooling of the economy.
Private consumption would show a marked deceleration in the third quarter of the year, which would imply a cooling of the economy.

According to BBVA Research, for the remainder of the year, its base scenario considers that GDP growth will be relatively low, less than in the first seven months of the year, a period in which it reached a rate of 3.2% year-on-year.

“The international environment has deteriorated and, at the local level, the momentum generated by the normalization of the activities that were most affected by the sanitary isolation measures is running out. In addition, financing conditions are less and less favorable, business confidence is stuck in pessimistic territory and social conflicts will continue to affect extractive activities (for example, with recent blockades in the mining corridor in protest at the expansion of a mine of area). All of this will more than compensate for the uptick recently observed in public investment and the positive impact of income in the production stage of the Quellaveco copper mine,” they indicated. the economists Yalina Crispin and Hugo Vega from BBVA Research.

Consequently, BBVA Research continues to anticipate that in the remaining five months the economy will grow between 1.0% and 1.5% year-on-year, in line with its forecast for the year as a whole of 2.3%.

Meanwhile, the manager of the BCP Economic Studies Area, Carlos Prietostated that the Peruvian economy would grow only between 2% and 2.5% next year, added to an even weaker internal demand, of less than 2%.

In addition, he specified that the GDP in the third quarter of 2022 would be on average 2.6% year-on-year and in the fourth quarter of this year it would reach around 2% year-on-year, which would imply a fall in seasonally adjusted terms. By 2022, the economy would grow between 2.5% and 3%.

“Although Peru would register growth, these are so meager that they are not enough to solve the structural problems that the country has, such as poverty. Rather, there is a risk of missing the train of development and having a new generation lost,” said Prieto Balbuena.

Consumption will contract next year due to high interest rates and a drop in private investment.
Consumption will contract next year due to high interest rates and a drop in private investment.

The executive explained that the meager growth, between 2 and 2.5% for the Peruvian economy in 2023, is explained by various factors such as the lower growth of our trading partners, the average price of copper would be around 10% lower than in 2022 , the lagged effect on activity due to monetary tightening as a result of the increase in interest rates in dollars and soles by central banks, the 2021-2023 accumulated inflation close to 20% that erodes the consumer’s wallet, the fall in public investment in the face of the change of subnational authorities and the post-Covid-19 rebound effect is exhausted and is already limited almost only to the international receptive tourism sector.

“In 2023, domestic demand will grow even less than GDP, since the latter will benefit from an increase of around 7% in copper production, due to the fact that Quellaveco and the expansion of Toromocho will have in the first half of 2023 its first joint and complete semester of operation. Added to this is the gradual recovery of mining production after the stoppages and strikes in Las Bambas and Cuajone, which occurred in the first half of 2022,” added Carlos Prieto.

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Peruvian economy continues to lose momentum and grows only 1.41% in July