The recovery of domestic demand provide for an improved outlook for economic growth this year.  Simultaneously, increasing demand is driving a mounting deficit in the current account mitigated by strongly growing exports, which are profiting from favourable global demand and healthy prices for Peru’s main commodities.

July GDP up 4.8%.  On 7 September, the National Statistical Institute (INEI) announced that economic activity increased 4.8% in July compared to the same month last year.  The fishing industry led other sectors in growth, expanding by 55.9% year-over-year, up strongly from the healthy 26.7% growth rate reported in June.  Growth in the agricultural sector slowed from 8.2% in June to 8.0% in July.  Manufacturing as well as electricity and water picked up their growth pace compared to June, increasing 10.6% and 3.9% respectively (June: 10.3% and 3.6%), the expansion in commerce dropped from 6.9% to 5.6%.  Construction remains in recession and contracted 3.5% year-over-year in July even worse than the 3.0% contraction registered in June. 

The agricultural sector should profit from a series of measures recently launched by the new administration.  Fiscal measures represent a central feature of the government’s plan, among them the reduction of the income tax rate from 30% to 15%, the advanced reimbursement of the value added tax and the permission to depreciate more aggressively.  Furthermore, agricultural enterprises will enjoy financial assistance for purchasing imported machinery and labour code changes will incorporate a different regime for the agricultural sector.  In addition, the Fujimori administration paved the way for setting up a rural bank that will assist smaller agricultural businesses.  

Inflation continues on upward trend.  After virtually unchanged consumer prices in May and June, inflationary pressures returned in July and persisted throughout last month.  According to INEI, the consumer price index increased 0.47% in August, well above market expectations of 0.35%.  The annual rate increased from 3.48% in July to 3.78% in August.  Last month’s price increase was principally driven by rising food prices, higher electricity tariffs and price hikes in the health sector.  

At the annual presentation before the Congressional Budget Commission on 29 August, Central Bank President Germán Suárez Chávez confirmed that the central monetary authority remains confident that this year’s inflation target of 3.5 to 4.0% will be met.    For 2001, the Bank targets a range from 2.5-3.5% and set out official inflation targets of 1.5 to 2.5% for 2002-2003. 

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