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Economic outlook

29/04/2020

Peru in 2020: Unprecedented crisis and challenges

José Carlos Saavedra, Partner and Principal economist.

The world is suffering the worst crisis of the past 75 years due to COVID-19, and signs of deteriorating economies are increasingly evident. On the healthcare front, the exponential rise of infection cases has collapsed healthcare systems at the global level. On the economic front, several indicators suggest that the economic activity has plummeted all around the globe.

In Peru, although there are signs of a slight flattening of the curve of COVID-19 cases, the more than 40 days of quarantine have not been enough to contain the virus. In this line, the government has been forced to extend the mandatory social distancing measures until May 10.

Given this situation and considering some key assumptions, APOYO Consultoria estimates that this year, GDP will fall 10%-12% in real terms, formal employment will be reduced by 20%, and private investment, by 40%-50%. Because this is an unprecedented crisis and the level of uncertainty is very high, economic growth will depend on the evolution of many factors, such as global economic growth, further extensions of the quarantine, economic measures carried out by the government, among others.

Up to now, the government’s economic response have moved in the right direction to mitigate the impact of this severe crisis. This response has included the granting of a subsidy to the most vulnerable families, a payroll subsidy, tax and financial relief for companies, liquidity lines with State guarantees, “perfect suspension” of work, and the financing of this economic program through external debt with low rates.

However, there are three important risks that could limit impact of the government’s measures on economic activity: i) that shortcomings in public administration and in the healthcare system will jeopardize the control of the virus spread and the reopening of the economy, ii) that social discontent will increase and generate violence, as well as a wave of populist measures, and iii) that the gradual process of reopening economic sectors will not be adequate.

Contact us to see the complete report: contactaSAE@apoyoconsultoria.com

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.

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