Economic outlook

01/04/2020

Peru in 2020: Difficult times for the business environment

Donita Rodríguez, Head of Macroeconomic Analysis.

Due to the COVID-19 pandemic, the Peruvian economy is countering a shock of unprecedented nature and magnitude.
It is most likely that in March, GDP contracted by almost 20% compared with March 2019, generating a 5% fall in the 1Q2020. This has been the result of containment measures adopted by the Peruvian government (a 28-day mandatory social isolation) and of the production standstill observed in several countries in the world.
It is likely that the economic contraction in 2020 will be severe and long-lasting (annual GDP will fall by 5%). Consumption and investment will register their steepest falls of the past 20 years.
This scenario assumes, among other factors, a global recession and government measures accounting for 3% of GDP. In this exercise we have still not considered the additional measures announced by the government (which would raise impulse up to 12% of GDP).
Despite the adverse scenario in terms of economic growth, the depreciation of the Peruvian Sol against the U.S. Dollar will be limited and long-term financing costs will return to their average of the past 5 years (6.0%).

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OUR PERSPECTIVE

Changes in the Cabinet have strengthened the alliance with Congress amid a context of growing institutional weakness.

The Government’s main allies, Fuerza Popular and APP, leveraged the crisis triggered by the murder of 13 mine workers in Pataz to strengthen their influence over ministerial appointments.

Economic growth likely remained steady at the beginning of Q2 and is becoming increasingly broad-based, despite the uncertain external environment.

So far this year, the economic recovery appears to have consolidated, with growth becoming more broad-based. Domestic demand has shown solid performance.

The serious deterioration in the conduct of economic policy in the United States would impact Peru's economic growth mainly in 2026.

In the first quarter of the year, economic growth remained solid (3.6%). This was the result of a combination of favorable dynamics for GDP.