decreasing chart made of coins with white arrow, bankruptcy concept
A rough start of the year due to a wave of social unrest
Over the course of this year, the bussiness environment has undergone three notable changes that are shaping its trajectory. First, despite ongoing economic slowdown, the international environment looks more promising than the end of 2022, due to the end of China’s zero Covid policy, the resilience of the North American economy, and the reduction of gas prices in Europe. This has improved the prospects for global economic growth, increasing the price of copper and the risk appetite of global investors.
Second, there have been modest improvements in public management and reduced regulatory risk from the Executive compared to a few months ago, especially on the labor front. An example of this is the recent publication of the Telework Law, which provides greater flexibility to both employers and employees in key aspects of remote work and makes its implementation easier.
Third, in February, social protests have reduced and have concentrated in Puno, after reaching their peak in mid-January and having generated a marked deterioration in the business environment during that month.
Despite the improvements on the international front and in the State’s management, the economic environment has primarily responded to changes in the political and social landscape at the start of the year. For example, in the financial front, the escalation of violence led to the depreciation of the sol in January, even though its fundamentals, such as the price of copper, suggested appreciation. However, with the decline in violence, our currency has appreciated in recent weeks (see chart below). Similarly, roadblocks in January exacerbated food inflation, particularly in the southern region, where total inflation rose from 9% in December 2022 to 11% in January 2023, affecting consumers from CDE socioeconomic segments. However, the wholesale food price index has declined in the last two weeks, in line with the gradual abatement of the wave of violence.
At the same time, the economic activity has also been marked by changes on the political and social front. In fact, during the peak of violence in January, close to 80% of the clients of Apoyo Consultoría’s Business Advisory Service (SAE) reported having faced medium or high magnitude impacts on their operations due to the wave of demonstrations and violence. The impact was most notorious in the mining, construction, agribusiness and tourism sectors. As social protests have significantly decreased, certain high-frequency economic indicators have shown signs of improvement during February, including increased national electricity demand and vehicular traffic in Lima. Moreover, amidst a “temporary truce,” the protesters have lifted the blockades in the South Mining Corridor, potentially facilitating the restoration of mining production and economic activity in the southern region of the country. In fact, the electricity demand of Las Bambas mine has recovered considerably in the last week (see graph below).
Unfortunately, even if the number of protests remains low in the coming months, the local economic landscape is likely to be characterized by a decline in private investment and a moderation in the growth of formal employment, amidst a climate of elevated political uncertainty. As a result, the Peruvian economy is projected to expand at a sluggish rate of 2.2% this year.
Executive and Congress are holding their own amid the decrease in protests and the deadlock in the debate on early elections
During February, there was a decrease in the number of protests at the national level, as well as a focus on demonstrations in the south of the country, particularly in Puno.
Cerca del 80% de empresas sufrió impacto moderado o alto debido a protestas
Enero estuvo marcado por la intensificación de la violencia a nivel nacional, especialmente en el sur del país. La diversidad de actores y de intereses ha dificultado que el Gobierno logre identificar interlocutores válidos para entablar el diálogo; además, en el Congreso no se han alcanzado consensos para aprobar el adelanto de elecciones y con ello establecer una salida a la crisis política.
Dina Boluarte leads interim government amid protests and wave of violence
January was marked by social upheaval and intensification of violence at a national level, especially in the south of the country. Thediversity of actors has hindered the government from identifying valid spokespersons to enter into conversation and negotiate with and, to date, havenotmanaged to calm down the exacerbated state of affairs.