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Economy continues to
recover driven by strong mining
Unlike other economies in the region, Peru is exiting a prolonged economic
slump owing to strong growth in the mining industry. In August, the
nine-month recession finally came to an end as the economy experienced a
modest 0.6% expansion, which accelerated to 2.2% in September. In
October, the economy again grew by 2.2%, thus corroborating the recent
trend. More importantly, the upswing has spread across the economy.
Whereas growth in August and September was almost exclusively driven by
the beginning of commercial production at the Antamina copper-zinc mine
located in northern Peru, which provided for a huge boost in mining, other
sectors continued to lag. In October, however, all sectors exhibited
positive growth for the first time since May last year.
Mining-induced rebound
broadens across all sectors
Agriculture expanded 2.1% in October, up from 1.0% in September amid
improving climatic conditions and a strong boost in coffee output. Fishing
increased 4.0% over the October 2000, following four months of declining
production induced by an anchovy fishing ban. Mining and fuels expanded
by a strong 17.5%. However, the reading surprised to the downside since
the sector expanded by 22.1% in September and production at the Antamina
project is still ramping up to full capacity.
Electricity and water grew 5.1% over October 2000 as abundant rainfalls
supported higher output in the hydroelectric power plants and thus
compensated for lower output of water utilities. The manufacturing
industry expanded by 1.9%, driven by strong growth in primary
manufacturing, while non-primary manufacturing also grew, albeit at a
still very modest 0.5%. Nevertheless, the moderate growth rate in
non-primary manufacturing marks an end to nine consecutive months of
recession in that sector and bodes well for a broader-based recovery in
the economy. Finally, the construction industry eased out of recession
with 0.6% growth. Apart from a brief and modest respite in April, the
sector had been stuck in a downturn for more than a year. The recovery is
due to the reactivation of public sector works, since private sector
building activity still declined compared to October last year.
Commercial activities skirted the trend to faster growth and expanded by
only 1.6% following 2.2% growth in September.
The
government expects the economy to grow by just 0.2% this year, a notch
above the current Consensus projection of 0.1%. Panellists remain upbeat
about next year’s growth prospects, as strong mining output should
compensate for faltering global demand.
Another consumer price drop
in November brings Peru to the brink of deflation
The
incipient pick-up in domestic demand has not yet fed through to prices.
In November, consumer prices declined another 0.49%, continuing the series
of monthly price declines observed since April this year. In November,
the downside pressure on prices resulted principally from food and
beverages, housing and electricity as well as transport and communications
with no other of the price categories exhibiting marked upside pressures.
As a result, the country finds itself at the brink of deflation with
annual headline inflation at 0.1%, down 0.6 percentage points from
October.
Wholesale prices have in fact already dropped into negative territory with
deflation up further from 0.6% in October to 1.6% in November. Panellists
continue to adjust their forecasts to the restrained development in
consumer prices, expecting a year-end inflation rate of 1.3%. However,
given that not all forecasts reflect the November drop, inflation is
likely to be closer to the bottom of the forecast range of 0.2%. The
projected increase in domestic demand in 2002 should also serve to raise
inflation.
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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