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December economic activity
below expectations but healthy
In
December, economic activity expanded by 4.1% over December 2000. The
December reading remained above market expectations, which hovered around
3.5%, as strong mining was seen to offset a negative impact of a slump in
the fishing industry. Moreover, the growth rate registered in December
marks the best monthly performance in 2001 and confirms the upward trend
on which the Peruvian economy embarked on starting in August 2001. Thus,
the Peruvian economy expanded by 3.0% in the fourth quarter, following on
the upward revised 1.2% growth in the third quarter this year. As a
result, growth in 2001 as a whole was 0.2%, according to the preliminary
information provided by the National Statistical Institute (INEI).
Mining continues to drive
the economy but impact from El Niño threatens recovery
Key
behind the improved economic setting and the positive December result was
the run-up of operations at the Antamina copper-zinc mine located in
northern Peru, which in December provided for a 27.9% boost to mining
output compared to a year ago. For the year as a whole, growth in the
mining sector reached 11.2%. The positive development in the mining
sector was countered by plummeting output in the fishing industry. In
December, fishing activity declined a staggering 38.0% over the same month
the year before. The reason behind this dramatic decline was unfavourable
climatic conditions in the maritime fishing grounds, which prompt many
species to be displaced further away from the coastline. The negative
performance of the fishing sector over the past months prompted a 13.3%
decline in that sector lat year, almost as bad as the El Niño related
decline observed in 1998. In fact, some meteorological agencies have
warned that El Niño could rear its ugly head this year. El Niño is a
disruption of the ocean-atmosphere system in the tropical Pacific Ocean,
which has important consequences for weather around the globe. Among
these consequences are increased rainfalls in Peru, which typically cause
destructive flooding. The Climate Prediction Center of the US National
Oceanic and Atmospheric Administration warned on 5 February that it seems
most likely that El Niño conditions will develop in the tropical Pacific
during the next three months. However it is unlikely that the effects
will be as dramatic as in 1998, since the El Niño of 1997-1998 was
considered very strong.
Plunge in fishing industry
triggers slump in manufacturing
Owing
to a lack of input from the fishing sector, the primary manufacturing
industry plunged 10.9% in December year-on-year. In addition, the more
important non-primary manufacturing expanded only 0.6% and was thus unable
to compensate for the weaker output in primary manufacturing. As a
result, total manufacturing activity output contracted in December (-2.1%
year-on-year). The dismal performance of the fishing sector throughout
last year also thwarted a more positive development in the manufacturing
sector. On the other hand, the climatic conditions boosted electricity
and water sector output. The 5.8% expansion in the electricity and water
sector is mostly due to positive development in the country’s
hydroelectric power plants, as thermal power plants registered a decline.
For the year as a whole, electricity and water production expanded by
3.8%.
Construction industry on
way to recovery after three consecutive years in recession
The
construction industry has mastered the strongest turnaround. In December,
the sector expanded by a healthy 12.8% on an annual basis, driven by
public works projects, in particular road construction. In addition,
private sector building activity is also picking up. For the whole year,
the construction sector declined 6.0%, which represents the third annual
decline in a row. However, the sector’s professional organisation (Cámara
Nacional de Construcción) is upbeat about this year’s growth prospects and
expects the industry to expand by 7.0%. Finally, the commercial sector
reverted back to a more positive 1.6% growth rate in December after a
brief dip below the 1.0% threshold in November. As a result, the sector
escaped recession and turned in flat growth in 2001.
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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