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The
contraction in manufacturing was due entirely to the primary sector-related
manufacturing, which contracted 13.1% over the same month last year in the
wake of an almost 30% contraction of the fishing sector. On a positive
note, non-primary manufacturing has reverted to positive territory (+0.1%)
for the first time since October 2000, amid strong growth in machinery
equipment and automobile output. Mining and fuels also developed
favourable with a 5.6% expansion, despite continued commodity price
weakness and a substantially weaker oil sector. The construction industry’s
downturn accelerated into double-digits (-12.4% year-over-year) after a
brief respite in April and May. The lower production level in
agricultural and manufactured goods also caused a slowdown in wholesale
and retail activities, which dropped 3.9% in June compared to the same
month last year.
Toledo’s ambitions to pull the economy free from the current recession
will be difficult. The government has decided to use fiscal stimulus to
boost the economy. The fiscal deficit target of 1.5% of GDP agreed to
with the IMF has been raised to 2.2% of GDP. However, panellists do not
believe the fiscal easing to have a sustained impact on the Peruvian
economy. While foreign donors seem willing to finance the ambitious job
creation programme, additional financing resources will be difficult to
obtain as long as the uncertainty related to the Argentine crisis limits
access to international capital markets, particularly given the current
Peruvian macroeconomic conditions. Therefore, estimates for GDP growth in
the remaining two quarters of the year have remained unchanged and the
Consensus has cut the forecast for this year.
Inflation drops significantly
but salary hikes and additional jobs will exert price pressure towards the
end of the year.
In July, consumer prices inched upward by 0.17%. Prices were pushed by
food prices, as demand for goods and services rose after workers received
their annual Independence Day bonus payments during the month. The price
increase remained well below the Consensus Forecast of 0.37% and drove
down the annual inflation rate from 2.5% in June to 2.2%. However,
panellists expect price pressures to increase as the announced public
sector wage hikes and the job generation programme should provide a boost
to the disposable income. As a result, inflation is seen to pick up again
by the end of the year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Peru. For more details please click here.
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