The abundance of beauty was misleading. The growth of the Peruvian economy in April and May, which the Executive highlighted as its own achievement has waned in June.
Leading indicators point to a slowdown in the Peruvian economy of about 1% in the sixth month of the year. Although some specific factors negatively influenced the outcome, the temporary boost from fishing and public investment that had propelled the economy in April and May has faded.
“We project a growth rate of 1.1% for the economy in June,” stated Isaac Foinquinos, senior economist at Macroconsult.
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“Based on leading indicators, we expect a month with growth around 1%,” remarked Juan Carlos Odar, director of Phase Consultores.
BBVA Research and the Peruvian Institute of Economics (IPE) project similar growth figures for June, estimating 1% and 0.9%, respectively.
The final result for national production in that month will be released this Thursday, August 15.
According to Hugo Perea, chief economist for Peru at BBVA Research, a slowdown in national production growth was anticipated in June, but leading indicators reveal it was more pronounced than expected.
Factors
Experts indicate that fishing has ceased to show growth above 100%, as it did in April (+158.4%) and May (+329.16%). In June, this sector grew by 56.77%. This situation implies that manufacturing activities, which depend on the conversion of anchovy into fishmeal, have also increased, albeit at a lower rate.
Another influencing factor was the decline in construction. Macroconsult estimates that construction activity may have decreased by approximately 2.5%, attributed to the slowdown in public investment.
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According to the BCR, spending on public works rose by 14.3% in April and 44.5% in May; however, in June, it only grew by 6.4%, linked to lower execution rates by local governments.
Additionally, there was no statistical impact from Easter that would have benefited April’s performance.
The decline in the hydrocarbon mining sector also contributed negatively. Metal mining contracts fell by 8.1%, particularly due to maintenance activities at Toromocho. Hydrocarbon production, which had been growing at double-digit rates, also showed signs of slowdown.
Thus, with the June result estimated around 1%, GDP growth projections for the second quarter fall between 3.7% and 3.9%, according to Phase Consultores, Macroconsult, IPE, and BBVA Research.
For the first half of the year, they are aiming for a growth rate of 2.6%.
Second Semester
For the latter half of the year, the projections from the interviewed economists favor an expansion of approximately 3%, in a more conducive context.
Foinquinos noted that private consumption will be propelled by withdrawals from AFP funds, stimulating sectors such as commerce and services, as well as the recovery of non-primary manufacturing.
“(In the second half of the year) certain sectors, like the clothing industry linked to the severe winter, are expected to rebound,” he indicated.
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Odar believes one of the key factors will be the Central Reserve Bank’s interest rate reductions, which will be reflected in lending opportunities as well as statistical improvements. According to Odar, the dynamics from the last months of the previous year were not favorable, which could statistically aid a rebound.
“Last year, there was a decline in all months of the second half, except for November,” he stated.
Perea added that besides the support from AFP funds, investment announcements such as Tía María, Chavimochic, and the Chancay port, along with reduced political noise, will enhance the economy by fostering confidence.
He further noted that another growth element will be the control of inflation, as this will prevent it from undermining consumer incomes.
Those interviewed expect the economy to maintain a growth rate of around 3% for the year, and they do not see any emerging factors suggesting that this growth could be higher.
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So much beauty was not true. The growth of the Peruvian economy in April and May, which the Executive boasted about as its own effort was diluted in June.
Leading indicators indicate a slowdown of the Peruvian economy of around 1% in the sixth month of the year. Although there were some specific factors that played against the result, the temporary boost from fishing and public investment that expanded the economy in April and May has dissipated.
“We have a growth projection of 1.1% for the economy in June,” said Isaac Foinquinos, senior economist at Macroconsult.
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“According to the leading indicators, we are looking at a month with growth of around 1%,” said Juan Carlos Odar, director of Phase Consultores. BBVA Research and the Peruvian Institute of Economics (IPE) project similar growth for June: 1% and 0.9%, respectively. The final result of national production in that month will be known on Thursday, August 15.
According to Hugo Perea, chief economist for Peru at BBVA Research, a slowdown in national production growth was expected in June, but leading indicators show that it was more pronounced than anticipated.
Factors Affecting Economic Performance
According to experts, several factors contributed to this economic slowdown:
- Fishing Industry Decline: The fishing sector has stopped showing exceptional growth, recording only a 56.77% increase in June, compared to over 100% in April (+158.4%) and May (+329.16%). This decline affected manufacturing activities related to anchovy conversion into fish meal.
- Construction Slowdown: The construction sector fell by approximately 2.5% due to reduced public investment, with public works spending growth dropping significantly from 14.3% and 44.5% in April and May to only 6.4% in June.
- Statistical Effects: The absence of a statistical effect from Easter, which favored April’s performance, further contributed to the downturn.
- Mining Sector Challenges: There was a decline in the hydrocarbon and metal mining sectors, with metal mining contracting by 8.1% due to scheduled maintenance at Toromocho.
As a result of these factors, forecasts for GDP growth in the second quarter range between 3.7% and 3.9%, according to assessments from Phase Consultores, Macroconsult, IPE, and BBVA Research. The first half of the year is projected to see a growth of around 2.6%.
Outlook for the Second Half of the Year
Looking ahead, economists expect an expansion of around 3% in the second half of the year within a more favorable context. Such expectations are based on several factors:
- Increased Private Consumption: Withdrawals from AFP (Private Pension Fund) will likely boost sectors like commerce and services.
- Recovery in Non-Primary Manufacturing: Certain sectors are anticipated to recover, particularly clothing tied to the winter season.
- Reducing Interest Rates: The Central Reserve Bank’s reduction in interest rates will likely spur borrowing and spending.
- Statistical Rebound: Previous declines in the second half of last year may enhance growth metrics for this year.
According to Perea, forthcoming investments in projects such as Tía María, Chavimochic, the port of Chancay, and reduced political noise are expected to enhance economic confidence. A controlled inflation rate will also bolster consumer spending by preventing erosions in income.
Case Studies: Economic Expansion
| Project | Investment (Million USD) | Completion Date |
|---|---|---|
| Tía María | 1,400 | 2024 |
| Chavimochic | 700 | 2025 |
| Port of Chancay | 1,200 | 2023 |
Overall, these projects combined will not only contribute to job creation but also stimulate various sectors, creating a ripple effect that enhances economic growth.
Practical Tips for Navigating Economic Changes
Here are some practical tips for businesses and individuals to navigate the changing economic landscape:
- Diversify Investments: Consider diversifying investments to mitigate risks associated with economic fluctuations.
- Stay Informed: Keep abreast of economic indicators and changes in government policies to make informed decisions.
- Focus on Efficiency: During slowdowns, focus on operational efficiency to reduce costs and maintain profitability.
- Engage with Local Networks: Strengthen local partnerships to better respond to changes in the market and consumer behavior.
Conclusion & Recommendations
With careful monitoring of economic trends and proactive strategies, both businesses and consumers can better prepare for the evolving landscape of the Peruvian economy.
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