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The Peruvian economy is improving and even
managed to edge out a slight increase in growth last year. So far, however,
the recovery remains based on two singular events: The ramp-up of commercial
production at the Antamina copper-zinc mine, which is on the way to become
one of the country’s largest mining operations and additional public
spending, which has spiked as the Toledo administration tries to jumpstart
economic growth and live up on its campaign promises. |
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Fourth quarter recovery
driven by external sector and public sector
Central Bank data confirm the 3.0% expansion in the final quarter last
year reported earlier by the National Statistical Institute (INEI). The
fourth quarter expansion followed on a 1.2% expansion in the third quarter
and negative growth in the first half of 2001. Additional numbers
indicate that the healthy fourth quarter growth was driven mainly by a
strong contribution from the external sector, owing to an 8.4% expansion
in exports and a 4.9% decline in imports. Domestic demand remained
sluggish. While the meagre 0.6% expansion registered in the fourth
quarter 2001 compares favourably to four consecutive quarters of
contracting domestic demand, a closer look at the data suggests that the
incipient upswing is still fragile. Total consumption increased 2.1% in
the fourth quarter year-on-year, following a 1.2% expansion in the third
quarter. The bulk of the increase, however, was due to public consumption
which jumped from 0.5% growth in Q3 2001 to 7.7% in Q4, while private
consumption growth inched upward by only 0.2 percentage points to 1.4%,
which remains even below the rate of expansion registered in the second
quarter. Investment presents a similar picture. Gross fixed investment
improved markedly from the 7.0% contraction in Q3 2001 to a much milder
2.0% decline compared to the same period the year before. The
improvement, however, is almost entirely due to the public sector, which
jumped from the staggering 18.2% contraction in third quarter to 4.9%
growth in the final quarter of last year. Private investment, on the
other hand, remains in negative territory with a 3.7% decline
year-on-year, which represents only a moderate improvement compared to the
third quarter (-4.7%).
Investment turnaround
expected after four years of recession
For
the full year, domestic demand expanded 0.4% with a negative first half
and positive growth in the second. Consumption increased 1.1% and gross
fixed investment declined 8.3%, the fourth consecutive annual decline.
Panellists see investment turning around this year with growth reaching
3.4% in 2002 and rising further to 6.3% in 2003. Consumption is also
likely to pick up speed, albeit at a more moderate 2.6% growth rate in
2002.
January data confirm
recovery as mining continues to propel the rest of the economy
The
first set of fresh output data for this year suggests that the recovery is
well under way. In January, the economy expanded 3.9% compared to the
same month last year. The January performance constituted the sixth
consecutive month of growth following on an almost yearlong recession.
While the January reading corroborates that the Peruvian economy is
pulling clear from recession, it remains below the 4.1% expansion
registered in December last year. In fact, according to seasonally
adjusted data, the economy contracted 0.4% over the previous month. As in
previous months, mining led the economic recovery. In January, the sector
added 26.8% over the same month last year, driven by additional output
from the Antamina copper-zinc mine located in northern Peru. Performance
of other sectors is also improving. Nevertheless, mining still accounts
for almost one third of economic growth (1.26 percentage points), despite
its relatively small weight in the Peruvian economy of below 5%. Fishing
was the only sector to experience a contraction in January. However, the
6.0% annual decline constitutes a significant improvement compared to the
huge contractions registered in November (-54.1% year-on-year) and
December (-38.0% yoy). Despite a lack of input to the primary
manufacturing sector from fishing, manufacturing reverted to positive
growth in January following two months of contraction. The improvement
was mainly due to non-primary manufacturing, which expanded by 3.0%; as
primary manufacturing based on raw materials also picked up 1.1% compared
to two consecutive months of double-digit contractions. The positive
development of the manufacturing sector also boosted electricity and
water, which expanded by 6.4% over January 2001. The construction sector
stayed on a firm path to recovery. The sector, which had suffered three
years of steep contractions is expanding rapidly and reached an annual
growth rate of 15.6% in January after 12.8% growth in December.
Increased
optimism about this year’s prospects
Panellists are a notch more optimistic about this year’s economic growth
outlook and have increased their forecasts by a 0.1 percentage point since
last month. The speed of recovery will pick up towards the end of the
year and will provide a solid backdrop for a strong expansion in 2003.
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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