The international environment is becoming increasingly favorable for Peru. Over the past month, the global scenario has been defined mainly by three factors: the election of Joe Biden as President of the U.S., the successful progress of vaccines in their last stages of development, and the alarming increase in the number of infections and deaths from COVID-19 in some developed countries. Although the latter is holding back economic recovery in some countries, the first two events have significantly improved the prospects for global economic recovery for the upcoming year, specifically from its second half. The reaction of financial markets to these events has been positive. This, added to the accelerated economic recovery in China and the continued expansive monetary impulse at the global level, has created a favorable international environment for Peru.
In addition, at the local level there are four main drivers of economic activity. First, the public sector impulse increased significantly in October. Second, credit continues to grow at high rates. Third, private investment is recovering rapidly, mainly due to specific factors such as home improvements and the demand for information and communication technologies (ICTs). Fourth, the improvement in the public health situation has made it possible to continue the process of economic reopening.
Unfortunately, these improvements in the business environment have been overshadowed by the new political crisis. Thus, despite the improved global context and the greater dynamism of economic activity, the considerable uncertainty caused by the recent political crisis generated a significant risk to economic growth, as high uncertainty could delay the recovery of private investment in productive capacity increases.
Going forward, political uncertainty will be the main obstacle to economic recovery. The evolution of regulatory risk in the business environment, the relationship between the Executive branch and Congress, and the government’s ability to deal with the health and economic crisis will all be crucial to determine the pace of recovery in investment and formal employment in the upcoming months. These factors will be extremely important as the economic situation of families remains strongly deteriorated
Last month, we identified four pieces of good news for the business environment: (i) lower prices of certain imported goods, (ii) lower political risk, (iii) improved business confidence, and (iv) some stabilization in local financial variables.
Six months into the administration, signs of an impending deterioration in the relationship between the Executive and Congress are starting to surface.
After a challenging start of the year, characterized by social conflicts and heavy rains, the Peruvian economy has begun to show signs of recovery, albeit at a slow pace.
