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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

Sondeo SAE

De acuerdo con el sondeo empresarial realizado durante la semana del 12 al 16 de octubre a los clientes del SAE, siete de cada diez ejecutivos califica al riesgo regulatorio desde el Congreso con el máximo grado de preocupación para la toma de decisiones de inversión en sus organizaciones empresariales en los próximos 12 meses.

Panorama fiscal

La crisis ocasionada por el COVID-19 generará un severo deterioro de las cuentas fiscales en el Perú. Si no se implementan medidas, el incremento de la deuda pública sería insostenible. Si se implementan algunas medidas tributarias, se podría estabilizar la deuda pública alrededor de 40% del PBI. Aún hay espacio para generar mejoras adicionales y estabilizar la deuda pública en el límite legal de 30% del PBI.

Economic outlook

Economic recovery continued to lose impulse in September. However, in September there were some positive signs on the economic and public health fronts. The above is positive news, but it is still too soon to expect an acceleration of economic recovery towards the end of the year.

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