Political crisis wreaks havoc in economic outlook.  The impact of the political jitters that will particularly affect investment decisions towards the end of the year and in early 2001, have strongly affected the economic outlook. 

Inflation remains on the rise.  In October, consumer prices increased 0.23%, less than half the increase observed in September.  Nevertheless, the annual inflation rate spiked from 3.9% in September to 4.3% in October.  Fuel (+4.2% over last month), electricity tariffs (+0.4%) and telecommunications (+1.3%) were the main drivers behind the October price increase.  Some food items, such as fish and fruits, also added to the price hike.  While the Central Bank remains confident about reaching its year-end inflation target of 3.5% to 4.0%, panellists maintain a more pessimistic outlook. 

Rating Agencies react to political crisis.  On 1 November, the international rating agency Standard & Poor's lowered its long-term foreign currency sovereign credit rating from “BB” to “BB-“.  The rating agency also lowered the credit ratings for long-term local currency and short-term local currency.  The short-term foreign currency sovereign credit rating was confirmed.  At the same time, Standard & Poor's revised the outlook on the republic's ratings to stable from negative.  In addition, on 8 November, the international rating agency Fitch affirmed its ratings for foreign and local currency obligations, but placed its currency ratings on Rating Watch Negative.  Both agencies quoted the heightened political uncertainty as a reason for their actions.  Additionally, both cited depressed investment, higher financing costs and stalled economic reforms and consequently lower economic growth, which will negatively affect the public balances, as their key reasons.  However, the lower ratings are unlikely to significantly raise the cost of credit for the country, since the market had already factored in the higher political uncertainty into asset prices.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru and includes information available up to 12 November 2000.  For more details please click here.

For five-year forecasts, please click here.