Due to the rapid increase in the number of COVID-19 cases and the collapse of the health care system, the Government announced new restrictions to diminish the spread of the virus, along with some economic relief measures to compensate their impact.
With the information available so far, we consider that the measures taken by the Government will have a moderate aggregate impact on GDP in 2021. In fact, the current restrictions will reduce annual GDP by close to 0.5 percentage points for every month they are in effect.
There are two main reasons why this quarantine will have much less of an impact than last year’s quarantine. Firstly, on this occasion industry, construction, mining, as well as other productive activities will continue to operate. Secondly, the new quarantine is being implemented–for now–in regions that represent two-thirds of the total GDP, in comparison to the national confinement we underwent last year.
Nevertheless, the measures that will take effect from January 31st will do significant damage to stores, restaurants, transport and entertainment, as well as the financial situation of the lowest income sectors of the population.
In the face of the negative impact from the new sanitary restrictions, it’s crucial for the Government to implement financial relief measures swiftly. APOYO Consultoría proposes a package of measures–equivalent to 0.85% of GDP–which could be evaluated in order to mitigate the economic impact for each passing month of quarantine (see page three).
In conclusion, the economic prospects for the upcoming months are highly uncertain, since they will depend on the duration of the new sanitary restrictions and the final scale of the Government’s economic relief measures. For now, everything seems to indicate that the business environment for 2021 will be in between our base scenario forecast (10% growth of GDP) and the pessimistic scenario we presented in the January Monthly Meeting Report (8% growth of GDP).
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.
