While
Toledo continues to lead the polls, the outcome of the 3 June presidential
run-off elections is anything but certain, as many voters remain undecided
in the light of recent political scandals. Meanwhile the economy is
headed for a steep nosedive since investors are shunning new investments
until the new government takes office on 28 July and clears up some of the
uncertainty about the future economic policy framework
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Economy
continues its tailspin. The Peruvian economy is headed
for a nosedive. In March, economic activity contracted 3.6% in real
terms over the same month last year. This represents the fourth
consecutive monthly decline and the trend continues to point downward.
In January, the economy had contracted 1.6% and deteriorated further to
2.5% in February. As a result, economic activity dropped 2.6% in the
first quarter compared to the same period last year. Fishing
experienced the sharpest drop, contracting 30.3% - after 6.1% growth in
February - as the government implemented a fishing ban on anchovies.
Agriculture fell 3.0% amid adverse climatic conditions. Mining added
0.7% after two months of contraction owing to strong copper, silver and
zinc output. Manufacturing, the most important sector, plummeted
6.3% driven by weak primary industries (-16.1% yoy) and also, to a lesser
extent, by non-primary industrial production (-3.1% yoy). Since
fishmeal production is included in the manufacturing industry data, part
of the sector’s poor performance can be attributed to the fishing ban.
Surprisingly, electricity and water withstood the general downward trend
and added 4.1% over March last year. Construction, on the other
hand, remains mired in deep recession (-16.2% yoy), while commerce slipped
into negative territory (-3.5% yoy) following a slight annual increase in
February.
Gloomy
outlook for this year and uncertainty about 2002. The
outlook for the Peruvian economy continues to deteriorate. Political
uncertainty has increased after the 8 April presidential elections
resulted in run-off elections slated for 3 June between front-runner
Alejandro Toledo and investors’ nightmare Alan García (details see
below). Even though the interim government claims to have stepped up
public spending, the effects on economic growth cannot be observed yet.
According to Economy Minister Javier Silva Ruete, the benefits of the
government’s spending initiative are being offset by weak global
economic conditions and the negative effect of electoral uncertainty on
domestic business activity. As a consequence, he has reduced the
government’s projection for economic growth this year to 1% to 2%, which
is down from the 2% to 3% growth previously expected. Panellists
share the more pessimistic outlook and have again slashed their forecasts.
Nevertheless, the worst seems to be over as the Consensus sees the economy
stabilising in the second quarter and expects low but improving growth
towards the end of the year. In 2002, the economy is seen to
recover, although the uncertainty for next year remains high, with
forecasts ranging from 0.8% to 5.5% growth.
Deflationary
bout in April. In April, consumer prices dropped 0.42%
over March. The deflationary bout caught the market by surprise as
the Consensus had expected an 0.4% increase. Prices dropped as an
abundant supply of agricultural products prompted price declines of nearly
1% for some food items, which are heavily weighted in the consumer price
index. Prices for fuels and domestic gas also contributed to the
observed price erosion. Annual inflation fell one percentage point
from 3.6% in March to 2.6% in April. The core inflation index, which
excludes the more volatile items in the consumer price index, increased
0.47% in April. The annual core inflation rate remained unchanged
from March at 2.9%.
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